MUMBAI: Struggling to raise lendable funds through deposits, public-sector banks led by the State Bank, Canara Bank and Bank of India among others are on an aggressive bid to tap the infrastructure bond market, which is long-term money at comparatively cheaper rates.
Struggling to raise lendable funds through deposits, public-sector banks like State Bank, Canara Bank, and Bank of India among others are on an aggressive bid to tap the infrastructure bond market.
This would provide long-term money at comparatively cheaper rates. Within the past 30 days, they have already mopped up close to Rs 40,000 crore from such debt capital.
Money raised through infra bonds is effectively cheaper as the issuer is not obligated to meet the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) requirements with this money, unlike deposits.
Current CRR is 4.5 per cent while SLR is 18 per cent, which is parked/invested in government securities. However, a bank cannot lend the money raised through infrastructure bonds to any other sector or purpose.
While from SLR, banks can make money depending on the bond yield movement, they earn nothing from the CRR, which is parked with the RBI sans any interest.
While the last month saw State Bank of India doing it twice (late June and early July), raising Rs 10,000 crore each, Canara Bank earlier this week had raised Rs 10,000 crore at a coupon rate of 7.40 per cent in a 10-year infrastructure bond.
The State Bank being the market leader had the coupons for the 15-year money priced at a low 7.36 percent for both the issuances.
Bank of India Wednesday said it would hit the debt market Thursday with a Rs 5,000 crore bond sale.
Pune-based Bank of Maharashtra has said it is looking to raise Rs 10,000 crore through infrastructure bonds, with the first tranche of Rs 2,000-2,500 crore expected this year.
Among private lenders, ICICI Bank had last month raised Rs 3,000 crore at a coupon rate of 7.53 per cent by selling 10-year infrastructure bonds. Larger rival HDFC Bank is also reportedly looking to use the infrastructure-bond route to raise to Rs 15,000 crore.
Meanwhile, late in the evening, the Mumbai-headquartered Bank of India said it has raised Rs 5,000 crore through long-term infrastructure bonds at a coupon rate of 7.54 per cent per annum.
The lender said the money was raised through the NSE’s electronic bidding platform and the issue had a base size of Rs 2,000 crore with a green shoe option of Rs 3,000 crore.
Given the higher subscription - the bank received a total of 127 bids amounting to Rs 15,318 crore - only 57 bids worth Rs 5,000 crore were accepted.
The money will be used to fund long-term projects in infrastructure sub-sectors and affordable housing per RBI guidelines.
Infrastructure bonds normally have a tenure of at least seven years and the proceeds are utilised by banks to only fund long-term infrastructure projects. Banks are tapping the infrastructure bonds route as they are facing mounting pressure in mobilising deposits to meet credit demand.
The persistent credit-deposit gap, which has been repeatedly flagged by the Reserve Bank), shows the slow pace of deposit mobilisation. According to the latest data, deposit growth dipped further to 10.6 per cent as of June 28 while advances rose 13.9 per cent.