State-run banks such as Bank of India and Bank of Baroda 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 Rs 1,500 crore ($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 has announced plans to raise up to Rs 2,200 crore via tier-II bonds, while Jammu and Kashmir Bank 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 Rs 1,500 crore through 7-year infrastructure bonds, merchant bankers said. State Bank of India, the country’s largest lender, is also considering raising up to Rs 10,000 crore 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 US 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 November 9.
Bank credit growth was at 16.99% on year as on November 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.