Government issues zero-coupon bonds worth Rs 5,500 to recapitalise Punjab and Sind Bank

Punjab & Sind Bank

The government has issued Rs 5,500 crore in zero-coupon bonds to recapitalise Punjab and Sind Bank (P&SB) and allowed it to park the paper in its held-to-maturity (HTM) category at face value rather than the discounted market rate. The move is a first of its kind.

Zero-coupon bonds are debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

As per a Business Standard report, the move has raised concerns in the accounting fraternity despite Reserve Bank of India (RBI) clearing it after through internal deliberation.

Public sector Punjab & Sind Bank (PSB) had in November said that the government okayed infusion of Rs 5,500 crore capital into the bank. "The bank is in receipt of a letter dated November 10, 2020, from the Ministry of Finance regarding sanction to infuse an amount of Rs 5,500 crore," it said in a regulatory filing on November 10.

The government’s shareholding in the bank as of September 30, 2020, stood at 83.06 percent.

The Finance Ministry had on September 14 sought Parliamentary approval to infuse Rs 20,000 crore into public sector banks (PSBs) via recapitalisation bonds.

The government had refrained from committing any capital in the Budget 2020-21 for PSBs, hoping that lenders will raise funds from the market depending on the requirement.

In 2019-20, the government infused Rs 70,000 crore into PSBs to boost credit for a strong impetus to the economy. In the last financial year, Punjab & Sind Bank received Rs 787 crore.