The government has allocated a budget of Rs 15,000 crore for state-run banks this fiscal through non-interest-bearing zero-coupon bonds. This comes even as some banks had approached the government seeking clarity given that RBI has asked them to account for these bonds at fair value.
Zero-coupon bonds or non-interest bonds sell at a discount as they offer no interest. The return to investors comes via capital gains when they are redeemed at face value. Accounting for these bonds at the discounted market would depress banks’ capital that holds these bonds.
In the previous fiscal, the government had infused Rs 20,000 crore in five lenders including Central Bank of India, Punjab & Sind Bank, Bank of India, Indian Overseas Bank, and UCO Bank through non-interest-bearing securities. As per the FY23 budget, the government will be shelling out Rs 17,689 crore towards interest payments on bank recapitalization bonds in the best fiscal.
