Govt won't issue zero coupon bonds for banks’ recap

New Delhi: The government has decided not to issue any more zero-coupon bonds towards bank capitalisation, said two officials aware of the developments. This comes after banking regulator Reserve Bank of India (RBI), and Department of Investment and Public Asset Management (DIPAM) raised concerns over the innovative capital infusion instrument resorted to by the government."We will not opt for zero coupon bonds," said one of the officials. The government had relied on zero coupon bonds for the first time last year when it used it to infuse Rs 5,500 crore in state-owned-Punjab and Sind Bank. The government had budgeted Rs 20,000 crore in FY21 towards bank recapitalisation and it is yet to decide on infusion of the balance Rs 14,500 crore. “The RBI has written a letter citing concerns that the nature of these instruments can lead to accounting adjustments,” said one of the officials, adding that the banking regulator is concerned that this could pose regulatory challenges. An email sent to RBI did not elicit any response. DIPAM secretary, Tuhin Pandey did not respond to text messages.

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