CENTRE MULLS STEPS TO INFUSE FUNDS TO BANKS

Considering zero coupon bonds as part of its promise to pump in fund

New Delhi, Oct. 27: The finance ministry is considering zero coupon bonds as one of the options to recapitalise NPA-hit public sector banks as part of its commitment to pump in `2.11 lakh crore to help them meet capital adequacy norms Basel III.

There are various options on the table and zero coupon bonds is one of them, a senior ministry official said.

However, the discussion is at a preliminary stage, the official said, adding that final decision with regard to the `1.35 lakh crore recapitalisation bonds will be taken towards the end of the next month.

Zero coupon bonds are debt instruments that are issued at discount, but are redeemed at face value after the expiry of the specified tenure.

For example, a bond with a face value of `100 may be issued at `85 for two years. At the end of the two years, the bondholder will get `100, implying an interest income of `15.

Earlier this week, the government unveiled `2.11 lakh crore two-year road map for strengthening NPA-plagued public sector banks, which include recapitalisation bonds, budgetary support, and equity dilution.

The programme entails mobilisation of capital, with maximum allocation in the current year through budgetary provisions of `18,139 crore, and recapitalisation bonds to the tune of `1.35 lakh crore over the next two years.

The balance will be raised by banks from the market by diluting government equity.

The government’s equity dilution would help banks raise about `58,000 crore. The government equity, as per the current policy, can come down to 52 per cent in state-owned banks.

Finance minister Arun Jaitley while announcing the road map had said the capital infusion would be accompanied by reforms to enable the state-owned banks to play a major role in the financial system.

Mr Jaitley had said the details of the recapitalisation bonds would be determined in due course.