Reserve Bank of India announces rate of Interest on Floating Rate Bonds 2015


On 27/06/2014, RBI has announced that the rate of interest on the Floating Rate Bonds, 2015 (FRB, 2015) applicable for the year (July 2, 2014 to July 01, 2015) will be 8.83 percent per annum.

Dated Government securities are long term securities and carry a fixed or floating  coupon (interest rate) which is paid on the face value, payable at fixed time periods (usually half-yearly). The tenor of dated securities can be up to 30 years.

Floating Rate Bonds – Floating Rate Bonds are securities which do not have a fixed coupon rate. The coupon is re-set at pre-announced intervals (say, every six months or one year) by adding a spread over a base rate. In the case of most floating rate bonds issued by the Government of India so far,the base rate is the weighted average cut-off yield of the last three 364- day Treasury Bill auctions preceding the coupon re-set date and the spread is decided through the auction. Floating Rate Bonds were first issued in September 1995 in India.

The rate of interest on the FRB, 2015 was set at a mark-up (as decided in the auction held on July 1, 2004) over and above the variable base rate. The variable base rate for payment of interest shall be the average rate (rounded off up to two decimal places) of the implicit yields at cut-off prices emerging in the three auctions of Government of India 364 day Treasury Bills immediately preceding the relative annual coupon reset date which worked out to be 8.64 per cent. The mark-up decided in the auction held on July 1, 2004 was (+) 0.19 (plus 0.19) percent. The coupon rate has been fixed at 8.83 per cent per annum accordingly.

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