Following State Bank of India’s (SBI) Rs 10,000 crore fundraise through infrastructure bonds last week, public sector lender Canara Bank on Tuesday tapped the debt market to raise Rs 10,000 crore at a coupon of 7.40% through 10-year infrastructure bonds.
On July 10, SBI raised Rs 10,000 crore via infra bonds with a 15-year tenure at a coupon rate of 7.36 per cent.
Previously, SBI had raised Rs 10,000 crore on June 26 at the same coupon rate.
Another public sector lender, Bank of India (BoI), will also tap the debt market on July 18 to raise about Rs 5,000 crore. Meanwhile, Pune-based public sector lender Bank of Maharashtra has also said that 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.
Money raised through infrastructure bonds is advantageous for banks because it is exempt from regulatory reserve requirements such as the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). Unlike funds raised through deposits, where banks must maintain 4.5 per cent of the amount as CRR with the Reserve Bank of India (RBI) and invest approximately 18 per cent in securities to meet SLR obligations, infrastructure bond proceeds can be fully deployed for lending activities.
“The spreads are attractive for such instruments, and there is a lot of appetite among long-term investors, especially after erstwhile HDFC Ltd. and NHAI have exited this market. Hence, we are seeing so many issuances. However, fundraises through infrastructure bonds cannot be a substitute for deposits for banks,” said an industry source.
Among private lenders, ICICI Bank has also tapped the debt market to raise Rs 3,000 crore at a coupon of 7.53 per cent through 10-year infrastructure bonds last month. According to media reports, HDFC Bank is also looking to use the infrastructure bonds route to raise up to Rs 15,000 crore.
Infrastructure bonds have a tenor of at least seven years, and the proceeds are utilized by banks to fund long-term infrastructure projects.
Banks have made a beeline to raise funds through infrastructure bonds as they face huge pressure in mobilizing deposits to satiate the credit demand in the economy. The persistent credit-deposit growth gap, which has been flagged by the Reserve Bank of India (RBI) repeatedly, is reflective of the slow pace of deposit mobilization by the banking industry.
According to the latest data, deposit growth dipped further to 10.6 per cent as of June 28. Credit growth during this period was 13.9 per cent. Experts believe banks will step up their efforts to accelerate deposit mobilization so that credit offtake is not constrained.
Recently, at least three public sector banks, including State Bank of India, have launched special deposit schemes for a limited period to mobilize more deposits. Banks continue to face challenges on the…
Read More: Canara Bank raises Rs 10,000 crore at 7.4% via 10-year infra bonds |
