State Bank of India is expected to enter the debt market next week to raise up to Rs 10,000 crore via infrastructure bonds, with Bank of India likely to follow a week later to raise Rs 5,000 crore. These bonds help reduce lenders' overall funding costs as they are exempt from CRR and SLR
ReutersInfra bonds help lenders reduce their overall cost of funds
State Bank of India is likely to tap the debt market next week to raise up to Rs 10,000 crore through infrastructure bonds and Bank of India may follow suit a week later to raise Rs 5,000 crore. Infrastructure bonds help lenders reduce their overall cost of funds amid an ongoing battle for deposits as these debt instruments are exempt from the regulatory requirement of maintaining cash reserve ratio (CRR) and statutory liquidity ratio (SLR). SBI, the country’s largest mass lender, is likely to raise the funds through 15-year infrastructure bonds, people aware of the developments said.
The debt sale is likely to take place around July 10-11, they said. The upcoming bond sale comes on the heels of an infrastructure bond issuance by the bank on June 26, through which it had raised Rs 10,000 crore amid strong demand from institutional investors. “They (SBI) are likely to again opt for a 15-year maturity infrastructure bond as they wish to actively develop the longer-term yield curve for these instruments,” one of the persons cited above said. “They would likely be looking for a coupon rate of around 7.35-7.36%, similar to the one that was set at the last issuance.”
Bank of India is likely to carry out its infrastructure bond sale around the third week of July, with the state-owned lender likely to opt for securities maturing in 10 years, people aware of the matter said.
Emails sent to SBI and Bank of India seeking comment did not receive responses by the time of publication. With bank credit growth persistently outstripping deposit growth over the past couple of years, Indian lenders have been compelled to aggressively push for mobilisation of funds through higher deposit rates or issuances of debt instruments. In this scenario, infrastructure bonds help banks manage their interest rate margins more efficiently as the exemptions from reserve requirements for these instruments bring down cost of funds.
For SBI, next week’s likely bond sale would close the lender’s plans for long-term bond issuances for the current financial year. On June 19, the bank had informed exchanges that it had received board approval for the sale of long-term bonds worth up to Rs 20,000 crore in 2024-25 (April-March).
BENCHMARK YIELD With government bond yields softening over the past few weeks — in the run-up to the inclusion of Indian sovereign debt in a JP Morgan index — cost of borrowing in absolute terms for highly-rated corporate entities has reduced. Yield on the 10-year benchmark government bond closed at 6.99% on Friday, much lower than 7.11% on the first working day of the current financial year.
Reuters
Get Unlimited Access to The Economic Times
