The Reserve Bank of India (RBI) may red-flag the Rs 5,500-crore zero-coupon bonds issued by the government towards recapitalising state-run Punjab and Sind Bank (PSB).
The government issued the bonds on December 23, permitting the lender to park the paper in its held-to-maturity (HTM) category at face value instead of the discounted market rate.
The central bank may ask Punjab and Sind Bank to hold the instrument in the HTM portfolio at a discount, rather than face value, Business Standard reported.
Also read: Government issues zero-coupon bonds worth Rs 5,500 to recapitalise Punjab and Sind Bank
A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount to the face value.
"This (structure) has to be reworked. It is bad accounting, and has implications for the broader debt market. You can't create equity out of thin air," a source told Business Standard.
Moneycontrol could not independently verify the report.
"It can be abused as an instrument if such accounting norms are allowed," another source told the publication.
In the 2029-20 financial year, Punjab & Sind Bank received Rs 787 crore from the Centre towards recapitalisation. the Ministry of Finance had infused Rs 70,000 crore into public sector banks (PSBs) in FY20.
The parliament had in September 2020 approved Rs 20,000 crore to be made available for recapitalisation of PSBs.