RBI moves to boost bonds is­sued by states

The Pak Banker - - 6BUSINESS -

MUM­BAI: The Re­serve Bank of In­dia (RBI) has al­lowed banks to clas­sify bonds is­sued by state gov­ern­ments as part of the Ujwal Dis­com As­sur­ance Yo­jana (UDAY) scheme un­der the held-to-ma­tu­rity (HTM) cat­e­gory, two peo­ple fa­mil­iar with the de­vel­op­ment said. RBI had in a re­cent let­ter to the trea­sury de­part­ments of banks said that bonds is­sued to re­tire debt given to power dis­tri­bu­tion com­pa­nies (dis­coms) can go to the HTM port­fo­lio of the banks, said a pub­lic sec­tor banker, one of the two per­sons quoted above.

Clas­si­fi­ca­tion of bonds un­der HTM shields such in­vest­ments from mark-to-mar­ket losses. Un­der the UDAY scheme, state gov­ern­ments would con­vert 75% of the debt of their re­spec­tive dis­coms into state govern­ment bonds. On 27 Fe­bru­ary, RBI had in­di­cated that it would con­sider al­low­ing UDAY bonds to be held un­der HTM though no for­mal cir­cu­lar has been is­sued. State gov­ern­ments that have signed up for the UDAY scheme have al­ready be­gun is­su­ing bonds to banks.

Power min­is­ter Piyush Goyal had on Wed­nes­day tweeted that Ra­jasthan is­sued UDAY bonds at a coupon, or in­ter­est rate, of 8.39%. This is lower than the 8.55% paid by the state to raise Rs.1,000 crore at the last state govern­ment bond auc­tion on 8 March. What makes this pos­si­ble is a sin­gle dik­tat by the cen­tre that state govern­ment bonds is­sued in lieu of dis­com loans will be is­sued at a coupon of up to 75 ba­sis points over the cor­re­spond­ing bench­mark 10-year cen­tral govern­ment bond.

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