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RBI has given relief to banks by allowing them to hold Uday bonds under held-to-maturity category which shields such bonds from mark-to-market losses during rising yields. Photo: Reuters
RBI has given relief to banks by allowing them to hold Uday bonds under held-to-maturity category which shields such bonds from mark-to-market losses during rising yields. Photo: Reuters

RBI calls for investors to buy six state bonds under UDAY scheme

The bonds will be available for subscription through the private placement mode to investors until 30 March

Mumbai: Six states will issue bonds under the Ujwal Discom Assurance Yojana (Uday) scheme to revitalize power distribution companies this week. The bonds will be available for subscription through the private placement mode to investors until 30 March, the Reserve Bank of India said.

Interested investors will have to approach the Internal Debt Management Department of the central bank, the RBI said in a circular on Monday.

The bonds will be priced as per Uday scheme stipulations announced by the central government, the circular said.

Uday caps the yield on such bonds at 75 basis points spread over the benchmark 10-year government bond on a semi-annualised compounding basis. One basis point is one-hundredth of a percentage point. The 10-year bond yield is currently at 7.50%.

Under Uday, announced by the government in November 2015, states will take over 75% of the outstanding debt of distributors. Uday bonds will have a five-year moratorium on repayment and only the interest payments would be included in calculating states’ fiscal deficit, which is capped at 3% of the state gross domestic product (GDP). The outstanding debt of all discoms as of September 2015 was 4.3 trillion.

Rajasthan has already issued 28,500 crore worth of bonds in lieu of the three discoms to 26 banks that had lent to these companies. The bonds issued on 16 March pay a coupon of 8.39%, lower than the 8.55% the state paid when it borrowed directly from the bond market at an auction on 8 March.

Uday bonds issued by the states do not have the status of statutory liquidity ratio (SLR) bonds. Banks are mandated to keep 21.5% of their deposit base in SLR securities. The SLR norm ensures captive demand for eligible bonds.

However, RBI has given relief to banks by allowing them to hold Uday bonds under held-to-maturity category which shields such bonds from mark-to-market losses during rising yields.

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