What are Zero coupon bonds ? | UPSC

What are Zero coupon bonds ? | UPSC

      HEADLINES:

Zero coupon bonds: Innovative govt tool to fund PSBs, keep deficit in check

      WHY IN NEWS:

Though these will earn no interest for the subscriber, market participants term it both a ‘financial illusion’ and ‘great innovation’ by the government where it is using Rs 100 to create an impact of Rs 200 in the economy.

SYLLABUS COVERED: GS 3: Economy : Bond Markets : Securities

      ISSUE: 

The government has used financial innovation to recapitalise Punjab & Sind Bank by issuing the lender Rs 5,500-crore worth of non-interest bearing bonds valued at par.

      IASbhai WINDUP: 

  • Financial market participants said the government seems to have found an innovative way to capitalise banks, which does not affect the fiscal deficit while at the same time provides much needed equity capital to the banks.
  • But they also caution this may not be a permanent solution for the banking sector’s problems.
SUGGESTED READING : TECHNICAL RECESSION 
     SOURCES:  IE   | What are Zero coupon bonds ? | UPSC

 

DISCOVER MORE : GENERAL STUDIES-III

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