As proposed in the UDAY (Ujwal Discom Assurance Yojana) plan, the Rajasthan government on Wednesday issued bonds worth Rs 28,455 crore to 26 banks at an interest rate of 8.39%, several bankers confirmed. The state government has got itself a sweet deal, given that it recently forked out 8.55% for a 10-year loan that is eligible for use by banks as part of the statutory liquidity ratio (SLR). Even though the UDAY bonds are non-SLR, the state government paid banks a lower rate of 8.39%.
The conversion will mean a loss to the net interest income of banks of approximately R600 crore annually (over the tenure of the loan) assuming the loans to discoms were priced at 10.5%. However, since the exposure is now to the state government, the risk weight on the asset will be zero and will result in around R1,800-2,000 crore of capital being released. As of September 2015, the Rajasthan discoms owed lenders R80,500 crore; the total discom debt, across states, stands at R4.3 lakh crore. UDAY bonds carry a moratorium on the principal of five years.
A senior banker in the consortium told FE his bank would hold the bonds in the available for sale (AFS) category.
He said the bank would try to sell them if it managed to get a good price. An executive at Bank of India (BoI) said his bank too would try and offload the bonds. “We are expecting some cut in the repo rate by June and there could be some demand for these bonds,” he said. The Reserve Bank of India (RBI) had said it would consider allowing banks to classify these bonds in the held to maturity (HTM) category. However, chances of a rally in bonds on the back of a rate cut might see them not classifying these as HTM bonds.
The UDAY scheme envisages 75% of the debt of discoms, as on September 30, being taken over by state governments and converted into bonds with a maturity of between 10-15 years. Nine states including Jammu and Kashmir have signed the tripartite agreement to participate in the scheme.
“Congratulations to @VasundharaBJP ji on issue of UDAY bonds worth Rs 28,455 cr to 26 banks at 8.39% resulting in affordable Power For All,” Union power minister Piyush Goyal tweeted. A few days ago, the power minister had tweeted about the issuance of UDAY bonds by Uttar Pradesh worth Rs 3,677 crore.