The Telegraph
Since 1st March, 1999
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Minimum discount of 7.5% in gilts swap

Mumbai, July 17: The Reserve Bank of India (RBI) today said a minimum discount of 7.5 per cent to the market price will be accepted for high-cost, illiquid securities to be bought back from banks and institutions.

Under the final list put out by the central bank today, the government will buy 19 outstanding illiquid securities worth Rs 1,00,438 crore. This tentative list announced in May had picked 24 securities valued at Rs 82,523.

Finance minister Jaswant Singh had said while presenting this year’s budget that a large proportion of the gilts that banks hold were contracted under the high-interest regime of the past, and is hardly traded now.

He announced a buyback of such loans entirely on a voluntary basis from banks that are in need of liquidity. The minister reiterated that the premium to be offered would be determined on a transparent basis.

If banks declare the premium received as business income for tax purposes, they will be allowed additional deduction on the part that is used for provisioning against bad loans, or non-performing assets (NPAs).

The premium will be paid in cash, while the remaining amount will be redeemed through new fixed-rate securities that will mature in five to 20 years.

Four securities — the 6.65 per cent 2009, 6.72 per cent 2014, 7.46 per cent 2017 and 6.25 per cent 2018 bonds — will be swapped with new gilts carrying lower rates.

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