Banks take the bond route to raise funds for meeting credit demand
23 Nov 2009
In the past month around 12 banks have taken to issue of bonds for raising funds to meet rising loan demands triggered by fears that interest rates will rise sooner than later. The banks have raised close to Rs3,500 crore through sale of perpetual bonds and other debt capital to help prepare for a possible loan offtake over the coming days.
According to merchant bankers, Punjab National Bank and IDBI Bank are expected to sell their bonds in the local market. The development follows ICICI's move to raise funds by selling bonds in the international market to raise $750 million through dollar funds to shore up its capital base.
Analysts say that authorities have been sending out signals that they will not withdraw the economic stimulus yet and this has depressed the yields for corporate debt. They add that banks want to make the best of the opportunity by selling their debt.
With corporate bond yields falling to fresh three-and-a-half-month lows, following falling government bond yields, the yield on the five-year Reuters benchmark corporate bond fell to 8.07 per cent on Friday, the lowest since 30 July.
Banks need capital to lend to consumers, which they mostly raise by selling bonds called Tier II issuances in industry circles. Tier I capital consists of selling fresh shares (equity) and perpetual bonds which are more like quasi-equity offerings. According to merchant bankers, the highest quality banks are able to currently sell their Tier II bonds at around 8.5 per cent, and their perpetual bonds at around 9.5 per cent.
In the past month, Export Import Bank of India, IDBI Bank and Bank of Baroda were among the banks that raised funds at these rates. That the sentiment for bank offerings is also good can be gauged from the fact that ICICI Bank's $750 million issue has an order book of $4 billion, according to merchant bankers.
