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Govt revises tenure, rate of recap bonds issued to banks

The government on Saturday revised fixed coupon rate of 10 per cent and extended the tenure of the recapitalisation bonds, worth over Rs 5,000 crore (Rs 50 billion), issued to nationalised banks.

As per the revised format, the coupon rate on these bonds issued to over a dozen nationalised banks, would be linked to the yield on Government of India 364-day Treasury Bills, with additional one per cent over the average yield on these bills.

The tenure of the 12-year bond had been converted into "perpetuity" and made non-transferable.

The decision was taken at a meeting of Cabinet Committee on Economic Affairs, which met in New Delhi on Saturday.

The government had issued recapitalisation bonds, bearing a 10 per cent interest, to augment the capital base of public sector banks, including Bank of India, Indian Bank and Punjab National Bank, during 1993-95.

Announcing the decision, Finance Minister Jaswant Singh said these bond would be redeemable only as and when the bank returned the capital as part of the banks' restructuring programme.

The move is expected to enable these nationalised banks to raise the additional Tier-II capital for further raising the capital base to carry out expansion and modernisation works.

These bonds, earlier treated as Tier-II capital, could now be treated as permanent Tier-I capital of equities and reserves.

These bonds, issued under recapitalisation assistance, had helped the banks in meeting the prudential norms in income recognition and capital adequacy ratio.

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