Context:

The government has used financial innovation to recapitalize Punjab & Sind Bank by issuing the lender Rs 5,500-crore worth of non-interest-bearing bonds valued at par.

About:

• The special bond for Punjab and Sind Bank comes with 10-15 years of maturity. At the time of maturity, the investor is paid the face value or par value. It is not transferable
• It is held at the held-to-maturity (HTM) category of the bank as per the RBI guidelines. Though zero-coupon, these bonds are different from traditional zero-coupon bonds on one account — as they are being issued at par, there is no interest.

Zero-Coupon Bond

• A zero-coupon bond is a type of instrument that does not pay any interest to the bondholder. It is also known as a discount bond.
• It is issued at a discounted rate and not at par value.
• The return an investor earns is the principal amount plus interest amount.
• However, these are generally transferable at deep discount rates.

Coupon

• A coupon is an interest the bond issuer pays the bondholder.
• Coupon payments happen periodically from the time of issuance of the bond until its maturity.