The Government is unlikely to take zero-coupon bond route to further recapitalise public sector banks after the Reserve Bank of India expressed some concerns in this regard, sources said. The Government, they said, would resort back to recapitalisation bonds bearing a coupon rate for capital infusion in these banks. To save interest burden and ease the fiscal pressure, the Government last year decided to issue zero-coupon bonds for meeting the capital needs of the banks.

 

The first test case of the new mechanism was a capital infusion of Rs 5,500 crore into Punjab and Sind Bank by issuing zero-coupon bonds of six different maturities last year. These special securities with tenure of 10-15 years are non-interest bearing and valued at par.

 

However, the RBI raised some concerns with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par, sources said. Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value, they added. As a result, sources said, it has been concluded to do away with zero-coupon bond for recapitalisation. These special bonds are non-interest bearing and issued at par to a bank, they said adding that it would be an investment that would not earn any return and rather depreciate with each passing year.