The Central government on Tuesday gave the details of its Rs 800 billion recapitalisation bonds for banks through six maturities, and they will not disturb the market dynamics of the fixed-income paper, experts said. Sentiment in the market may improve because the coupons for the bonds were a bit below the closing rates for papers of similar maturities, according to analysts. The Rs 800-billion recapitalisation bonds would have a tenure of 10-15 years and would carry a coupon rate in the range of 7.35-7.68 per cent, the finance ministry said in a notification. Termed “non-transferable special government of India security”, the bond will carry a rate of interest, also known as the coupon rate, of 7.35 per cent for bonds maturing in 2028, 7.42 per cent for 2029, 7.48 per cent for 2030, 7.55 per cent for 2031, 7.61 per cent for 2032, and 7.68 per cent for 2033. “The papers are non-SLR [statutory liquidity ratio] and not for trading. Besides, the fact that the rates are at par, or slightly below the closing rates of similar maturity benchmark papers, shows they won’t have any detrimental effect on sentiment in the market,” said Harihar Krishnamurthy, head of Treasury at First Rand Bank. The 10-year benchmark bond closed at 7.434 per cent on Tuesday. The appetite of banks to invest in bonds will not be affected because the recap bonds cannot be counted to calculate the statutory liquidity ratio (SLR), or mandatory bond holding of banks, currently at 19.5 per cent of their deposit base. Bond rates have risen sharply in recent days as US yields hardened and jumped 13 basis points on Monday after Chief Economic Advisor Arvind Subramanian said the scope for cutting rates by the Reserve Bank of India was no longer there because of rising inflation. Besides, the Economic Survey, released on Monday, hinted that the fiscal consolidation target could be relaxed. The market interpreted it as higher borrowing for the next fiscal year. The consensus for gross borrowing numbers, before the Economic Survey report, was Rs 6.5-6.7 trillion.
That number may well be surpassed in the Budget announcement on February 1.