Short-cut on bank recap

P&SB's zero-coupon bonds violate prudent accounting practices

The government’s move to issue Rs 5,500 crore in zero-coupon bonds towards the recapitalisation of Punjab and Sind Bank (P&SB) has put the nearly three-decade-old process under the spotlight. As far as innovations go, even the interest-bearing recapitalisation bonds were unique to begin with. The Centre subscribes to a state-run bank’s preferential capital, and the proceeds are invested by the bank in interest-bearing bonds in a cash-neutral transaction and the entries are matched. Few other regulatory jurisdictions where there is a preponderance of state-run banks have opted for this mode to infuse capital. The move to opt for zero-coupon recapitalisation