After a gap of almost 6 months, banks are once again planning to raise funds by way of private placement of corporate bonds. This is because credit growth is picking up in the the second half of the current fiscal. while state-run Oriental Bank of Commerce (OBC) is planning to raise Rs 1,200 crore next week by issuing lower tier-II bonds, another government-owned lender Syndicate Bank may also hit the bond street to raise Rs 1,000-1,500 crore.
OBC's chairman and managing director SL Bansal confirmed the fund raising plans to Business Standard and said that the tenure of these bonds will be 10 years and the bank is looking for a coupon rate in the range of 8.90-8.93%. The funds are been raised to fund its credit expansion on the back of slower deposit growth. OBC had reported 12.5% credit growth for the year till 30 September, while deposit growth was 9.8%.
Coupon rate is the interest rate stated on a bond and is expressed as a percentage of the face value. Tier-I capital include equity capital and disclosed reserves while tier-II capital include undisclosed reserves, general loss reserves and subordinate term debts. Components of tier-II capital can be split into lower tier-II and upper tier-II. Lower tier 2 is comparatively cheap for banks to issue.
As on September 30, OBCs capital adequacy ratio stood at 12.06% with tier-I at 9.69%. As per Reserve Bank of India norms, the amount eligible for inclusion in tier-II capital as subordinated debt can go up to 50% of tier-I capital.
According to market sources, after nearly six months a bank is raising funds by using this route as credit demand has picked up. “Dena Bank had raised Rs 850 crore by issuing 15 year bond with a call option at the end of the tenth year about 6 months back.
The coupon rate was 9.23%,” said Ajay Manglunia, senior vice-president, Edelweiss Securities. According to Manglunia next week even Syndicate Bank may raise funds worth Rs 1,000-1,500 crore by private placement of bonds.
According to Manglunia in the last 6 months coupon rates have also dropped. “For a AAA rated 10 year bond the coupon rate has dropped by about 25 basis points,” said Manglunia. 'AAA' is the highest rating given by credit rating agencies and it signifies that a firm has an extremely strong capacity to meet its financial commitments.
Bond issue arrangers are of the view that there is good demand for these bonds by fund houses. According to issue arrangers, in the months to come more banks may raise funds using this route as coupon rates may soften further.
Bank credit grew by 16.21% year-on-year to Rs 48,59,751 crore for the fortnight ended November 2, shows data released by the Reserve Bank of India (RBI) on Thursday. The first half of the current fiscal has been sluggish in terms of credit growth. But bankers expect the second half to be better. In the second-quarter monetary policy review held last month the RBI had revised the credit growth projection downwards to 16% from 17% projected in April and July. However, deposit growth projection was kept unchanged at 15%.