Indian banks set to tap bond market to lock rates, fund credit

Jammu And Kashmir Bank

25/11/2022 08:19

By Bhakti Tambe and Dharamraj Dhutia
       MUMBAI, Nov 25 (Reuters) - Indian banks are set to step
up fund raising through bonds in next few weeks to take
advantage of a recent fall in yields and meet capital
requirements amid a pick-up in credit growth, analysts said.
    State-run banks such as Bank of India  BOI.NS  and Bank of
Baroda  BOB.NS  are in talks with merchant bankers to raise
funds via Basel III-compliant additional tier-I perpetual bonds,
according to arrangers.
    Bank of India is planning to raise up to 15 billion rupees
($183.67 million) through tier-I bonds and may tap the market by
the end of November, a senior official from the bank said on
Wednesday.
    "Many investors have shown their interest and accordingly
approached us for participation in our additional tier-I bond
issue," said the official, who refused to be named because the
matter is not public yet.
    Union Bank of India  UNBK.NS  has announced plans to raise
up to 22 billion rupees via tier-II bonds, while Jammu and
Kashmir Bank  JKBK.NS  is also at an early stage to raise 15
billion rupees via tier-II bond offering, three merchant bankers
with the knowledge of the matter said.
    "In order to meet the rising credit demand, banks are
raising additional capital in the form bonds so as to increase
their balance sheet size," said Sameer Kaul, managing director
and chief executive officer of TrustPlutus Wealth India.
    Separately, private lender Kotak Mahindra Bank has announced
plans to raise 15 billion rupees through 7-year infrastructure
bonds, merchant bankers said. State Bank of India, the country's
largest lender, is also considering raising up to 100 billion
rupees via infrastructure bonds, it informed the exchanges on
Thursday.
    Analysts also expect demand from investors for these bonds.
    "From an investor perspective, given that we may be towards
the end of the interest rate hike cycle, this presents a good
opportunity to invest in such bonds and lock in high yields as
compared to rates available in the last few years," Kaul said.
    Limited alternate investment options could also draw
investors to these bonds.
    Large and long-term investors, which have been on the
lookout for top-rated corporate bonds issued by state-owned
entities, are keen to reinvest in long-term bonds as they
currently have limited options, said Venkatakrishnan Srinivasan,
founder and managing partner of debt advisory firm Rockfort
Fincap.
    Corporates, including several non-banking finance companies
and state-run companies, are already making a beeline for the
debt markets to raise funds as borrowing costs fell after a
moderation in October's retail inflation in the United States
and India.
    The inflation data has raised hopes that the Reserve Bank of
India and the U.S. Federal Reserve will slow the pace of
interest rate hikes.
    The yield on the 10-year benchmark government bond has
fallen by 13 basis points since Nov. 9.
    Bank credit growth was at 16.99% on year as on Nov. 4, the
highest in over eight years.
    Amid a fall in yields, some banks will also look to complete
their fundraising and not wait until the end of the quarter when
liquidity conditions may tighten further, forcing them to pay a
higher rate, an arranger at a private bank said.
    ($1 = 81.6680 Indian rupees)
 (Reporting by Bhakti Tambe and Dharamraj Dhutia; Editing by
Saumyadeb Chakrabarty)
 ((Bhakti.tambe@tr.com))