Recap Bonds Tenor To Be Extended

The government is planning to extend the tenure of recapitalisation bonds worth over Rs 5,000 crore issued to about a dozen nationalised banks in 1994 from 12 years to perpetuity.

Official sources told Business Standard that a proposal has been sent to the cabinet committee on economic affairs to extend the tenure of these bonds. The CCEA meeting is scheduled for Saturday. Sources said the coupon rate on these bonds would be reset at 10 per cent a year.

The bond recapitalisation proposal also calls for equal amortisation of the amount from the seventh year onwards i.e. from the current financial year.

The government had issued these cash neutral bonds to augment the tier I capital base of the nationalised banks including Bank of India, Indian Bank, Punjab National Bank. These bonds were issued in the second phase of recapitalisation spread over 1993-94 and 1994-95 when financial sector reforms were being accorded priority.

A few years back, the government had carried out a similar exercise on bonds worth Rs 4,000 crore issued between 1985-86 and 1992-93. The government has since 1985-86 issued recapitalisation bonds worth nearly Rs 22,000 crore spread into three phases.