FIMMDA REVISES VALUATION NORMS FOR PERPETUAL BONDS

The self-regulating money market association has revised valuation norms for perpetual bonds. Unlike other fixed income instruments, a perpetual bond cannot be redeemed, but pays a steady interest throughout its life. The change in methodology was announced by the Fixed Income Money Market and Derivatives Association (FIMMDA) in its quarterly communique to banks. A perpetual is to be priced now as a sum of yield on 30 year Government security and 15 year corporate bond spread. Earlier, the 10 year corporate bond spread was considered for the calculation. At least 17 state run banks have tier-I or equity capital adequacy ratio of less than 7.5%, making them prime candidates for raising capital. Most of them may hit the market with perpetual bonds.