Non SLR Bonds India
Securities having SLR status, as specified by RBI, are eligible securities for investment by banks to meet their SLR commitments under Sec 24 (2-A) of the Banking Regulation Act (B. R. Act), 1949. As the name suggests, investment in Non-SLR bonds cannot be considered eligible for SLR requirement. These include PSU Bonds, Corporate Bonds and even certain Government Securities like Oil Bonds, Food Bonds, Fertilizer Bonds, etc.
Public Sector Undertaking Bonds (PSU Bonds) : These are Medium or Long Term debt instruments issued by Public Sector Undertakings (PSUs). The term usually denotes bonds issued by the central PSUs (i.e., PSUs funded by and under the administrative control of the Government of India). Most of the PSU Bonds are sold on Private Placement Basis to the targeted investors at market determined interest rates. Often investment bankers are roped in as arrangers to this issue. PSU Bonds are issued in demat form. In order to attract the investors and to increase liquidity, issuers get their bonds rated by rating agencies like CRISIL, ICRA, CARE, etc. Some of the issues may be guaranteed by Central / State Governments enabling them to get a better rating. The bonds may carry call / put option.
Corporate Bonds : Corporate Bonds are issued by public sector undertakings and private corporations for a wide range of tenors but normally upto 15 years. However, some Banks and Companies like Reliance have also issued Perpetual Bonds.
Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends, of course, upon the particular corporation issuing the bond, its rating, the current market conditions and the sector in which the Company is operating. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds. Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Some even carry a put-option for the benefit of the investors. Other bonds, known as convertible bonds, allow investors to convert the bond into equity.