What changed
RBI issued specific valuation guidelines for bonds issued by state power distribution companies (discoms) under the Government of India's 2012 financial restructuring scheme. These bonds have a two-phase structure: initially serviced by discoms with state government guarantees, later taken over and serviced by state governments.
What it means for you
Banks holding these discom bonds must value traded bonds at market price and untraded bonds using YTM rates for central government securities of equivalent maturity, plus a spread. The spread is 75 bps if state-guaranteed during the discom phase, 100 bps if not guaranteed, and 50 bps during the state government phase. These bonds remain subject to existing prudential norms for non-SLR securities.
What you must do
- Classify discom bonds as non-SLR securities and apply existing prudential norms.
- Value traded discom bonds at current market value as per Master Circular on investment portfolio.
- For untraded bonds, use YTM rates for central government securities of equivalent maturity with prescribed mark-ups based on guarantee status and liability phase.
- Monitor the guarantee status of each bond and adjust valuation spread accordingly.
Who it affects
All scheduled commercial banks (excluding RRBs), Banks holding or acquiring discom bonds under the 2012 restructuring scheme
What valuation method applies if discom bonds are not traded?
Untraded bonds must be valued on a YTM basis using FIMMDA-published YTM rates for central government securities of equivalent maturity, plus a mark-up: 75 bps if state-guaranteed during the discom phase, 100 bps if not guaranteed, and 50 bps during the state government phase.
Do these bonds follow standard non-SLR security rules?
Yes, apart from the specific valuation methodology, these bonds continue to be governed by extant prudential norms applicable to non-SLR securities.