State-owned Bank of Baroda (BoB) on Monday raised Rs 5,000 crore through ten-year infrastructure bonds at a coupon rate of 7.30 per cent, said sources aware of the development.
The bond offering by BoB, rated AAA by CRISIL Ratings, had a base issue size of Rs 2,000 crore and a greenshoe option of Rs 3,000 crore. The issuance was fully subscribed by investors.
A dealer at a state-owned bank said that the 10-year government securities yields have fallen, resulting in a lower cut-off rate for BoB than State Bank of India (SBI). There was strong demand for the issuance, which is typical for such instruments as provident fund (PF) funds prefer to invest in long-term bonds.
He added that the cut-off rates for future infrastructure bond issues are expected to be in the range of 7.30 per cent to 7.35 per cent for state-owned banks, and 7.35 per cent to 7.40 per cent for private banks.
Banks, especially state-owned banks, have made a beeline to raise funds through infrastructure bonds. Previously, the country’s largest lender, State Bank of India (SBI), raised Rs 20,000 crore in two tranches through 15-year infrastructure bonds at 7.36 per cent. The first tranche of Rs 10,000 crore was raised in June, while the second tranche was raised in July.
Additionally, Canara Bank has raised Rs 10,000 crore through 10-year infrastructure bonds at 7.40 per cent, while Bank of India has raised Rs 5,000 crore through 10-year instruments at 7.54 per cent.
Meanwhile, Bank of Maharashtra raised Rs 811 crore through a 10-year infrastructure bond issue at a coupon rate of 7.8 per cent earlier this month. The issue had a base size of Rs 500 crore and a greenshoe option of Rs 2,500 crore.
Cumulatively, state-owned banks have raised Rs 35,811 crore in the last couple of months through infrastructure bonds.
Funds raised through infrastructure bonds are attractive from a bank’s point of view since they are exempt from regulatory reserve requirements such as the statutory liquidity ratio (SLR) and cash reserve ratio (CRR). Unlike funds mopped up through deposits, for which 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 in lending activities.
Infrastructure bonds have a tenor of at least seven years, and the proceeds are utilised by banks to fund long-term infrastructure projects.
First Published: Aug 26 2024 | 7:03 PM IST
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