Special status for power bailout bonds sought
Though these securities do not have SLR status, they can be used as collateral for money market repurchase agreement or repo transactions in securities. The beneficiary companies can raise much-needed cash by trading these securities in the secondary market to banks and insurance companies.
In repo transactions, these securities are sold by their holders to investors by giving an undertaking to repurchase at a date and rate that are predetermined.
Other special securities like these power bonds include fertiliser bonds, oil bonds and Food Corporation of India bonds. The government has used the status frequently in the past to push its subsidy plans.
Top bankers, on condition of anonymity, maintained that they will be comfortable in subscribing to these bonds only if they have SLR status. Owing to the slowdown in the economy and burgeoning non-performing assets in their accounts, banks have turned risk-averse, preferring SLR bonds.
As per the Centre’s debt restructuring package, states will bear half of the liability of distribution companies or state electricity boards in a phased manner in two to five years by issuing bonds, while the balance will be restructured by banks by extending the repayment period from three to five years.
State governments have two options: repay debt or adopt the debt recast plan and issue bonds.
Banks have indicated that if state governments — especially those that have already breached their Fiscal Responsibility and Budget Management (FRBM)
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