What changed
RBI circular DBOD.FID.FIC.No 7/01.02.00/2010-11 dated October 28, 2010, applies the prudential norms on zero coupon bond investments, originally issued to banks on September 29, 2010, to select All-India Financial Institutions (AIFIs). These norms now apply mutatis mutandis to Exim Bank, NABARD, NHB, and SIDBI.
What it means for you
AIFIs must now follow the same investment classification, valuation, and provisioning rules for zero coupon bonds as banks. This ensures consistent prudential treatment across financial entities, reducing regulatory arbitrage. Lenders should review their zero coupon bond portfolios to comply with the new norms.
What you must do
- Review your institution's zero coupon bond holdings and ensure compliance with the September 29, 2010 bank guidelines.
- Update internal policies and systems for classification, valuation, and provisioning of zero coupon bonds.
- Train relevant treasury and risk management staff on the new prudential norms.
- Submit any required reporting or disclosures to RBI as per the guidelines.
Who it affects
Exim Bank, NABARD, NHB, SIDBI, Treasury departments of AIFIs, Risk management teams of AIFIs
What are zero coupon bonds?
Zero coupon bonds are debt instruments that do not pay periodic interest but are issued at a discount and redeemed at face value, with the difference representing the return.
Which AIFIs are covered by this circular?
The circular applies to Exim Bank, NABARD, NHB, and SIDBI, as specified in the notification.
When do these norms take effect?
The circular is dated October 28, 2010, and applies the bank guidelines from September 29, 2010, to AIFIs. Implementation should be immediate.