The Reserve Bank of India (RBI) has expressed some concerns over zero-coupon bonds for the recapitalization of public sector banks (PSBs) and discussion is on between the central bank and Finance Ministry to find a solution, according to sources. The government resorted to recapitalization bonds with a coupon rate for capital infusion into PSBs during 2017-18 and interest payments to banks for holding such bonds started from the next financial year.

The first test case of the new mechanism was a capital infusion of Rs 5,500 crore into Punjab & Sind Bank by issuing zero-coupon bonds of six different maturities last year. These special securities with tenure of 10-15 years are non-interest bearing and valued at par.

However, the RBI has raised some issues with regard to the calculation of an effective capital infusion made in any bank through this instrument issued at par, the sources said. Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value, they added.

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