Zero coupon bonds are the innovative financial tool used by Government of India to recapitalize Public sector banks in the country. Explain (200 Words)
Refer - The Indian Express
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IAS Parliament 4 years
KEY POINTS
Zero coupon bonds, also known as discount bonds. The investor purchasing a zero coupon bond profits from the difference between the buying price and the face value, contrary to the usual interest income.
Significance
· The government has used financial innovation to recapitalise Punjab & Sind Bank by issuing the lender Rs 5,500-crore worth of non-interest bearing bonds valued at par.
· Since these bonds are not tradable, not requiring it to register any mark-to-market gains or losses from these bonds.
· The government of India has found an innovative way to capitalise banks, which does not affect the fiscal deficit.
· It is a great innovation by the government, the market value of this bonds would be around Rs 2,750 crore.
· These recapitalisation bonds are special types of bonds issued by the Central government specifically to a particular institution.
· It is limited only to a specific bank, and it is for a specified period.
· Since it is held to maturity (HTM), it is accounted at the face value (and) no mark-to-market will be there.
Way forward
· These are instruments which are a variation of the recapitalization bonds but effectively meet the same purpose, and these are issued in conformity with the RBI guidelines.
Venkateshwaran R 4 years
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IAS Parliament 4 years
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aswin 4 years
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IAS Parliament 4 years
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Priya sabalkar 4 years
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IAS Parliament 4 years
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