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New Monetary Policy requires all commercial banks to issue minimum 25% of their paid up capital as debentures; look at the amount of debentures investors can expect from each bank

2019-08-04

As per the new monetary policy for FY 76/77, all commercial banks are required to issue at least 25% of their paid up capital as debentures. Debentures are debt instruments that provide a fixed interest rate to the holder and have a fixed period of maturity. Through issue of debentures, the company raises a debt that is to be repaid within the stipulated time at premium or at par.

Using debentures, the company can raise debt from individual and institutional investors by providing attractive interest rates. As for the investors, they can safeguard their investments for a fixed period of time and guarantee fixed returns on their investment. It also protects the investors from fluctuation in the performance of the company. Since, such facility is also provided by fixed deposits of banks, companies issuing debentures can attract more investors by providing competitive rates compared to the interest rate of the fixed deposits.

Due to the requirement of the monetary policy, investors can expect a huge amount of debenture issues in the market. While some banks have already passed the minimum threshold requirement, some are yet to make a debut in the debenture market. The following list depicts the amount issued or to be issued by commercial banks as debentures in the coming period. The list takes consideration of the ongoing and upcoming debenture issues by commercial banks.

(*Amount in Million)

As we can see, out of 28 commercial banks, 12 banks haven’t issued any debentures yet while only 6 banks have met or passed the minimum threshold requirement. The market has already seen debentures issues worth Rs.42.69 Arba and debentures worth Rs.34.82 Arba are yet to be issued. The highest amount coming from Mega Bank Limited (MEGA) worth Rs.2.59 Arba.

Among all commercial banks, NIC Asia Bank (NICA) has issued the highest amount of debentures worth Rs.12.13 Arba coming to be 137.36% of the current paid up capital. Similarly, the lowest has been issued by Citizens Bank International Limited (CZBIL) worth Rs.50 Crore.

Out of the total capital of Rs.2.46 Kharba, 17.32% of the capital has been issued as debentures while 14.13% of the capital is to be issued as per the requirements of the new monetary policy.

 

Source :- https://www.sharesansar.com/