Government to convert Rs 22,800 crore special bonds with banks

14 Aug 2006

1

Mumbai: The government proposes to convert Rs 22,800 crore ($4.9 billion) worth of special bonds held by some state-run banks into tradeable bonds over the next one year period, finance ministry sources said.

The conversion would be done in four tranches of about Rs5,000 crore ($1.1 billion) each quarterly over the 12-month period, sources said.

The government had allowed state-run banks to recapitalise through issue of bonds in the 1990s and early 2000s in a bid to shore up their capital adequacy for meeting the Basel II norms.

The bonds so raised were known as recapitalisation bonds and were not traded. These were to be held by the banks till maturity.

The proposal is awaiting cabinet approval and trading in bonds could start this quarter. The finance ministry is currently working on the tenor and coupon rates of the bonds.

The conversion of the special bonds is expected to inject more liquidity into the debt market and help banks sustain high loan growth.

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