Why Non-Convertible Debentures beats Company Fixed deposit

An NCD might not ring a bell in the minds of most Indian investors but is quite popular in the western world. The concept of issuing NCD’s is relatively new to India, having been first issued by SBI in 2008-09 to retail investors. The bonds are listed on BSE/NSE retail debt terminal.

Why ncd beats company fixed deposit from Sathish Mithun

Advantages of investing in NCD’s v/s Bank/Corporate Deposits

1. ·         NCD’s are in demat form- eliminates hassle of maintenance and safety of physical certificates.
2. ·         NCD’s can be traded- The bonds issued under public offer are listed on the BSE/NSE. Absence of lock in period ensures the investor can exit before maturity.
3. ·         No TDS Deduction- Since the bonds are in demat form and are listed there is no TDS.
4. ·         Opportunity to earn profit- The bonds are listed and traded on the market, which gives an opportunity to trade and earn profits. The value of these bonds is inversely proportional to the interest rates in the economy.
5. ·         Secure- Unlike Bank deposits which can generally be insured upto a certain limit, around Rs.1 lakh in most cases, NCD’s are secure in nature.
6. ·         Pledging of NCD’s- Bonds can be pledged with banks/NBFC’s to avail a loan or overdraft facility.
7. ·         Flexibility in tenure of maturity- The tenure of NCD’s could range from less than a year to 30 years. This acts as a buffer against reinvestment risk and also offers a steady source of income through interest.
8. ·         Earn interest income till date of transaction- If an investor sells the bonds before their maturity he/she will get the accrued interest till the date of the sale.
9. ·         Multiple interest payment options- An investor has the option to choose either cumulative payment or regular payment on interest.
10. ·         No settlement risk- The transactions are confirmed off-market but are settled on the NSE/BSE platform, thus eliminating settlement risk.

PNB raises Rs 1000 cr through sale of bonds

As a step to raise capital to meet the global capital adequacy ratio (CAR) requirement, public sector Punjab National Bank on Tuesday said it has raised Rs. 1000 crore in domestic market via private placement of bonds. 

PNB garnered Rs. 1,000 crore through long-term bonds which have a coupon rate of 8.23 % on February 9, the bank said in a statement.

As per the Basel III norms on CAR, all public-sector banks will need capital infusion of Rs 2,40,000 crores by 2018, the Finance Ministry has said. The Government plans to infuse capital to these banks in stages and has allocated Rs 11,200 crore for this in the current fiscal. Of this, PNB was allocated Rs 870 crore.

Finance Minister Arun Jaitley has stressed the need for capital infusion in his budget speech and said while public ownership will be retained, there will be an expansion of shareholding in a phased manner. Shares of these banks will be sold in a phased manner, he had noted.

What is Basel III?

Basel III (or the Third Basel Accord) is an international, voluntary regulatory standard on banking. Primarily, the accord focuses on regulations related to capital adequacy, market liquidity risk and stress testing. The basic principles were agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11.

After the global financial crisis of 2007-08, banks decided to make the capital adequacy ratio stricter and promote better financial compliance as a means to check such crises. Basel III evolved as a mechanism to tighten bank capital requirements by increasing bank liquidity and decreasing bank leverage.

About Punjab National Bank

Punjab National Bank (PNB), one of the largest nationalized banks, was established 120 years ago. The bank has 6081 branches including 5 foreign branches, 6940 ATMs with a customer base 8.9 crore. PNB, has strong fundamentals, good brand image and enjoys trust among customers. The Bank offers wide range of products and services to cater to every kind of need.

The Bank has won many laurels and accolades in recognition of its overall performance. Recently, PNB was awarded the Golden Peacock Innovative Product/Service Award 2014 by Institute of Directors, It also bagged the ‘Global CSR Excellence and Leadership Award’ for ‘Organisations with Best CSR Practices’ and ‘Bank with leading Financial Inclusion Initiatives Award’ by ABP News and “Vigilance Excellence Award” by Institute of Public Enterprises, New Delhi.