Public sector lender IDBI Bank has revived plans to raise up to Rs 3,000 crore through infrastructure bonds before March to lend to segments like roads and power generation.
Early this month it had kept the plans on hold due to hardening yields on 10-year bonds.
"When we scouted for interest in paper, the prospective investor's quoted coupon (interest rates) as around 8.65 per cent. This was high rate given trend of softening interest rate cycle,” said a senior IDBI Bank executive. “The liquidity was tight in market hence we decided to wait. We will use February and March to raise funds.”
Ratings agency ICRA has assigned a rating of "AA+" to the proposed Rs 3,000 Crore Infrastructure Bond offering. The outlook on the rating is negative, given the continued asset quality pressures on the bank’s credit portfolio.
The money raised from these bonds is exempt from obligation for Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
According to RBI rules, tenure of bonds has to be at least seven years. How much a bank can raise through infra bonds is linked to outstanding infra and affordable housing loan book.
Going by existing advances, the bank has room to Rs 14,000 crore through Infra bonds. It has already issued infra bond worth Rs 4,000 crore. “Raising money from market is cheaper than depending on deposits for which we have to give higher interest rate, There is demand for credit in roads and renewable energy projects,” the IDBI bank executive quoted earlier said.
Another rating agency, India Ratings, which also rates infra bonds said IDBI’s asset quality, while improving, remains vulnerable due to its large single-name concentrations in large corporates and infrastructure projects.
The bank’s stressed assets/total loans reached about 15.8% at end of September 2015 (gross Non-performing Assets of 6.9% and restructured loans of 8.9%).
The bank has been looking to reduce the concentration and increase the diversity of its loan portfolio. But legacy concentrations will take time to address and its asset quality could be vulnerable under a prolonged economic recovery, India Ratings said.