These recap bonds can be part of held-to-maturity (HTM) portfolio without any limit but are non-transferable and cannot be converted into any other securities.
The government today issued a circular detailing the outlines of recapitalisation of public sector banks bond issue. The bonds have been issued in six lots with maturities of 10, 11, 12, 13, 14 and 15-year.
Finance Minister Arun Jaitley announced on January 24, 2018 that the government will infuse Rs 88,139 crore into 20 public sector banks through recapitalisation bonds and budgetary support in the current financial year.
These recap bonds can be part of held-to-maturity (HTM) portfolio without any limit but are non-transferable and cannot be converted into any other securities. As these are HTM bonds, banks don’t have to take mark-to-market (MTM) profit and loss with the rise and fall in their prices.
The current Reserve Bank of India rule stipulates that banks keep aside only 19.5 percent of their deposits in HTM bonds.
The interest offered on these recap bonds have been fixed at 7.35 percent in line with the current rate offered on 10-year G-Secs (government securities).A total of Rs 35,828 crore will be infused into nine banks that haven't triggered prompt corrective action (PCA), including State Bank of India (SBI), Punjab National Bank and Bank of Baroda, among others, while Rs 52,311 crore will be pumped into 11 banks that have triggered PCA, including IDBI Bank, Central Bank of India, Indian Overseas Bank and UCO Bank.