NEW DELHI (Reuters) - Indian banks, which take on the debt of state-run power distribution companies in an overhaul of the energy sector, cannot hold that debt as part of their mandatory government-approved securities, the government said on Tuesday.
On Monday, the government announced a bailout of the power sector under which regional governments would take on half of power distributors' short-term debt and convert them into long-term bonds over a period of time.
Power Secretary P. Uma Shankar's clarification came after local media quoted Power Minister Veerappa Moily as saying the restructured debt of cash-strapped power distributors would be given statutory liquidity ratio status (SLR)
The distinction is important because should the restructured power debt be given SLR status, banks would need to sell some of their existing securities to be able to buy into those bonds.
Banks have to invest at least 23 percent of their deposits in approved securities, such as government or state bonds, in what is known as the statutory liquidity ratio.
The 10-year benchmark bond yield had risen from the session's low of 8.14 percent after Moily's comments, but stabilised to trade at 8.17 percent, just up 1 basis point on the day.
(Writing by Suvashree Dey Choudhury; Editing by Rafael Nam and Sanjeev Miglani)
Updated Date: Sep 26, 2012 00:16 AM