Issuance of zero coupon bonds likely for recap

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 Rs 2.11 lakh crore to help them meet global 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 Rs 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 Rs 100 may be issued at Rs 85 for two years. At the end of the two years, the bondholder will get Rs 100, implying an interest income of Rs 15. Earlier this week, the government unveiled Rs 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.

Final decision with regard to the Rs 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 par