PSB recap bonds fair valuing to dent Tier-1 capital up to 1.75%: Ind-Ra

The rating agency said it understands that the five recipient PSBs may need to value zero-interest bonds at fair value instead of par value

The fair valuation of the equity infused in five public sector banks (PSBs) through zero coupon bonds could lower the Tier-1 capital levels by 50-175 basis points than reported, according to India Ratings and Research.

The rating agency said it understands that the five recipient PSBs may need to value zero-interest bonds (recapitalisation bonds) at fair value instead of par value. The government of India had infused capital in them by issuing bonds in the first half of previous financial year (H1FY21).

The intrinsic net worth of these instruments could be lower at FY22-end at the outset than similar maturity government papers