Government to issue recapitalisation bonds in December

By: |
New Delhi | November 30, 2017 6:57 AM

The first tranche of recapitalisation bonds will be issued in December through a ‘liquidity-neutral’ model whereby public-sector banks (PSBs) sell their shares to the government, which, in turn, issues long-duration bonds to the banks, said an official source.

recap bonds, recapitalisation bonds, special purpose vehicle, long-duration bondsThe government is unlikely to float a special purpose vehicle (SPV) to issue such bonds, as it could delay the entire process and time is running out, said the source.

The first tranche of recapitalisation bonds will be issued in December through a ‘liquidity-neutral’ model whereby public-sector banks (PSBs) sell their shares to the government, which, in turn, issues long-duration bonds to the banks, said an official source. Of the proposed move to raise Rs 1,35,000 crore through such bonds in two years through 2018-19, such securities worth Rs 70,000-80,000 crore will most likely be issued this fiscal, keeping with the government’s policy of ‘front-loading’ capital infusion into the PSBs, said the source. The government is unlikely to float a special purpose vehicle (SPV) to issue such bonds, as it could delay the entire process and time is running out, said the source. While the trading of such bonds may not be allowed initially to prevent any wide-scale disruption in the bond market, the banks will likely be permitted to sell these later and realise proceeds. The government had issued similar bonds in the 1990s, which became marketable in 2006-07.

So while the government’s stake in the PSBs will go up immediately after the bonds are issued to them, ultimately the recapitalisation will pave the way for easier dilution of the Centre’s shareholding in them with potentially greater participation of private investors. The infusion will improve the state-run banks’ capital adequacy, or their capital to risk-weighted assets and liabilities, and enable them to lend more. According to a recent report by Kotak Institutional Equities, the recapitalisation bonds will add around 80 basis points to the government’s debt-to-GDP ratio in the current fiscal. Sources had earlier said only the interest burden of such a move, roughly around `8,000-9,000 crore a year, would be accounted for in the Budget, while the total bond amount would be the government’s off-Budget liabilities.

Do you know What is India expected to grow 10 pc during current fiscal: NCAER Director General Poonam Gupt,FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1FM reviews capex, asks DoT to expedite digital expansion
2Non-food credit growth stuck at 6.5% despite festive season onset
3Nirmala Sitharaman asks civil aviation ministry, Dept of Telecom to fast-track project implementation