RBI sets measures for state discom bonds

Moneycontrol Bureau

Bonds, which will be issued by state power distribution companies (Discoms), will be valued at their current market price, if they are traded and quoted. However, they will be valued on a yield to maturity (YTM) basis with a mark-up, if bonds are not traded and quoted, the Reserve Bank of India (RBI) said in a notification on Thursday.

"As these bonds are to be acquired by banks under special circumstances and these have two distinct features: (i) issued and serviced by State discoms with the guarantee of the respective state governments during the initial period and (ii) issued and serviced by the state governments during the latter period," RBI said.

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Banks had lent an estimated around Rs 1.90 lakh crore to different state power distribution companies. Eight states have showed interest for loan restructuring. As a part of those recast packages, Discoms are supposed to issue bonds to the tune of 50 percent of their exposures to their lending banks as part of restructuring excercise.

The illiquid bonds, which will not be traded, will be priced 75 basis points higher than federal government bonds if the papers are held by the state distribution companies, but guaranteed by the state government, RBI said.

The mark-up (addition over and above) will be 100 basis points if they are not guaranteed by state governments. However, it will be 50 basis points when the bonds are held by the state governments.

Discom bonds will not have any statutory liquidity ratio status. This means, banks cannot use them to maintain mandatory 23 percent SLR. Banks need to invest in government securities to for SLR maintenance.

saikat.das@network18online.com