IDBI Bank plans to raise Rs 3,000 cr via infra bonds in Q4

Public sector lender IDBI Bank plans to raise Rs 3,000 crore by issuing infrastructure debt during the financial year's fourth quarter ending March , a senior official said.

The proposed offering would be the second round in the current financial year. It had garnered Rs 1,000 crore by issuing infrastructure bonds in September. The tenure was 10 years and coupon (interest rate) was 9.5 per cent.

Rating agency CRISIL has assigned an "AA+/Stable' rating to the bond issue and reaffirmed its ratings on the bank's existing debt instruments.

IDBI Bank would be able to raise money at cheaper rates, thanks to the falling bond yields, the official cited above said. The yield on 10-year government benchmark bonds was 8.51 per cent at the close of September, which fell to 7.86 per cent at the end of December.

The premium for corporate bonds has also shrunk, compared to government papers. Together, this would help reduce the incremental cost of funds for bank, the bank official added.

According to CRISIL, IDBI Bank's cost of borrowing at 7.4 per cent in September (seven per cent 2013-14) is higher than the industry average cost. This (high cost of funds) has impacted its profitability.

The bank's resource profile is marked by a significantly low proportion of low-cost current account and savings account deposits. The share of low-cost deposits in total deposits was 22 per cent as on September 30 and 23 per cent as on March 31, 2014.

According to the Reserve Bank of India rules for infra bonds, the money raised through these instruments does not attract cash reserve ratio and statutory liquidity ratio. It means banks do not have to set aside money for reserve requirement out of funds raised via infrastructure bonds. Also, the rules for priority-sector lending do not apply to deploying money raised through infra bonds.

The IDBI official said the demand for funds to finance infrastructure projects was low, given challenges faced by sector. However, the loan flow could improve as problems are addressed for stalled projects. The infrastructure loans portfolio of bank stood at Rs 50,500 crore (26 per cent of total advances) at the end of September 2014.