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In a related party transaction on the last day of the financial year the government of India (GoI), as a principal shareholder, infused Rs14,500 crore of equity in four public sector banks Central Bank of India, Bank of India, UCO Bank, and Indian Overseas Bank (IOB). Simultaneously the four banks invested in bonds issued by GoI. These bonds, of varying maturities between 10-15 years, were issued at a zero rate of interest. These bonds have been labelled zero coupon par re-capitalisation bonds.
Economist Madan Sabnavis has called this an ‘innovative’ fund raising exercise by the GoI. To this bond market observer, it appears a case of too good to be true. It is indeed so, and hardly innovative.