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28/12/20 09:00 AM IST

Zero coupon bonds

In news

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. 

What kind of bonds are these?
  • These are “non-interest bearing, non-transferable special GOI securities” have a maturity of 10-15 years and issued specifically to Punjab & Sind Bank.
  • “These recapitalisation bonds are special types of bonds issued by the Central government specifically to a particular institution.
  • Only those banks, whosoever is specified, can invest in them, nobody else. It is not tradable, it is not transferable.
  • It is limited only to a specific bank, and it is for a specified period it is held at the held-to-maturity (HTM) category of the bank as per the RBI guidelines. 
Different from traditional zero coupon bond
  • Zero coupon bonds by private companies are normally issued at discount, but since these special bonds are not tradable these can be issued at par.
  • “There is a difference between zero coupon bonds issued by other corporates and these.
  • Normally zero coupon bonds are issued at a discount, which are tradable also.
  • Here, there is no question of trading and these are special types of bonds, which the government issues specifically to a specified person and it’s issued at par.
Source : Indian Express

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