State Bank of India's debt sale could prove costly for other lenders -bankers

IDFC First Bank

01/11/2023 11:54

By Dharamraj Dhutia and Bhakti Tambe
       MUMBAI, Nov 1 (Reuters) - The decision by State Bank of
India, the country's top lender, to accept slightly
higher-than-expected yields at its Tier-II bond sale on
Wednesday is likely to push up the cost of borrowing for other
lenders, bankers said.
    SBI raised 100 billion rupees ($1.20 billion) through
15-year Tier-II bonds with a 10-year call option at an annual
coupon of 7.81%, compared with market expectations of between
7.72% and 7.78%.
    "The coupon was slightly higher than expectations. But
looking at the current scenario, we do not expect yields to see
any material downside in the near term," said Ajay Manglunia,
managing director and head of the investment grade group at JM
Financial.
        Canara Bank  CNBK.NS , Bank of India  BOI.NS  and IDFC
First Bank  IDFB.NS  are among the lenders looking to issue
Tier-II bonds in the coming weeks on expectations that interest
rates will remain elevated in the near term, merchant bankers
said.
    None of the banks replied to a Reuters email seeking
comment.
    SBI got bids worth 159.07 billion rupees, against its base
size of 40 billion rupees. It had received bids worth 83.05
billion rupees for a cut-off of up to 7.74%.
    "Since we have the Federal Reserve policy later today, the
bank must not be wanting to come again to complete its planned
sale and hence, took the complete amount, even if it had to pay
slightly higher," one of the bankers said.
    Investors say that the rise in corporate debt yields is due
to the relatively narrower spread with government bond yields
and an oversupply of overall debt.
    Indian states have raised a larger-than-scheduled quantum of
funds via debt and the market expects further supply from the
central bank's announced central government debt sale.
    Indian states sold 10-year bonds in the 7.71%-7.77% band,
with the annualised yield still working out to be more than for
SBI's bond.
    "There is demand for corporate bonds," said Aneesh
Srivastava, executive director and chief investment officer at
Star Health Insurance.
    "But yields are still not attractive enough to go for these
papers in a big way."
 
 ($1 = 83.3072 Indian rupees)

 (Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)
 ((Dharamraj.dhutia@tr.com))