Tradeable bonds worth Rs 22.8k cr for state-run banks on cards
India will convert non-tradeable bonds worth more than Rs 22,800 crore ($4.9bn) held by some state-run banks into liquid tradeable bonds in the next 12 months.
By Agencies |
NEW DELHI: India will convert non-tradeable bonds worth more than Rs 22,800 crore ($4.9bn) held by some state-run banks into liquid tradeable bonds in the next 12 months, a finance ministry official said on Monday. In the 1990s and early in the new millennium, the government pumped capital into a number of state-run banks to help them weather a period of financial stress and shore up their capital adequacy.
The capital had to be invested in special bonds issued by the government, which became known as recapitalisation bonds. These bonds were not traded but were to be held by the banks to maturity. “The entire stock of Rs 22,800 crore will not be converted in one go. It will be in four tranches and the first tranche could be for about Rs 5,000 crore (Rs 50bn),” the official, who did not wished to be identified, said. The official gave no details as to how the bonds would be converted but said the proposal had to be approved by the Cabinet Committee on Economic Affairs (CCEA). “It may be taken up sometime next week,” he said.
After the Cabinet approval, the bonds could be issued every quarter in tranches, starting this quarter, the official said, adding the finance ministry was working out details like maturity and coupon rates. “The tenor, interest rates and timing of the issue will depend on the government’s borrowing schedule,” he said.
The move to convert the special securities into tradeable bonds follows a slew of steps to increase liquidity in the banking system announced by Finance Minister Palaniappan Chidambaram in his February budget.
Bankers said allowing the bonds to be traded would inject more liquidity into the debt market and help banks sustain high loan growth. Loans are growing at an annual rate of about 30%, while deposit growth is lagging at about 20%.
“(Conversion of bonds) would improve liquidity. There will be more depth in the bond market,” said Allen CA Pereira, executive director of Oriental Bank of Commerce. Bankers, however, say they want to see whether the non-tradable securities are converted into bonds that will qualify for statutory liquidity ratio (SLR) status.
The SLR is the 25% of commercial banks’ deposits that must by law be parked in government bonds.
The capital had to be invested in special bonds issued by the government, which became known as recapitalisation bonds. These bonds were not traded but were to be held by the banks to maturity. “The entire stock of Rs 22,800 crore will not be converted in one go. It will be in four tranches and the first tranche could be for about Rs 5,000 crore (Rs 50bn),” the official, who did not wished to be identified, said. The official gave no details as to how the bonds would be converted but said the proposal had to be approved by the Cabinet Committee on Economic Affairs (CCEA). “It may be taken up sometime next week,” he said.
After the Cabinet approval, the bonds could be issued every quarter in tranches, starting this quarter, the official said, adding the finance ministry was working out details like maturity and coupon rates. “The tenor, interest rates and timing of the issue will depend on the government’s borrowing schedule,” he said.
The move to convert the special securities into tradeable bonds follows a slew of steps to increase liquidity in the banking system announced by Finance Minister Palaniappan Chidambaram in his February budget.
Bankers said allowing the bonds to be traded would inject more liquidity into the debt market and help banks sustain high loan growth. Loans are growing at an annual rate of about 30%, while deposit growth is lagging at about 20%.
“(Conversion of bonds) would improve liquidity. There will be more depth in the bond market,” said Allen CA Pereira, executive director of Oriental Bank of Commerce. Bankers, however, say they want to see whether the non-tradable securities are converted into bonds that will qualify for statutory liquidity ratio (SLR) status.
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The SLR is the 25% of commercial banks’ deposits that must by law be parked in government bonds.
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