IDBI, Exim Bank to raise Rs 4,500 cr via bonds

IDBI Bank and Export Import Bank of India (Exim) plan to raise up to Rs 4,500 crore through bond issues to finance their business growth.

IDBI Bank, the erstwhile development financial institution, will raise up to Rs 2,000 crore through Omni bonds while Exim Bank will raise around Rs 2,500 crore through bonds of varying maturities. Exim Bank has also got a refinance facility the Reserve Bank of India to meet the needs of exporters and loans extended to sovereign governments.

Both the entities expect to cut their cost of funds taking benefit of the sharply declining yields on corporate paper. Rating agency Crisil has assigned AA+ rating to IDBI Bank’s Omni bonds. Exim Bank bonds carry of ‘AAA/stable” ratings.

The yields on bonds have dipped due to a sharp drop in inflation and aggressive reduction in key interest rates by central banks across the globe, including the Reserve Bank of India to rekindle growth to avert slowdown, IDBI Gilts managing director N S Venkatesh said.

IDBI Bank chief financial officer R Bansal said the timing for raising funds will depend on market conditions. The yields are down by over 250 points.

“This will definitely help to reduce to cost of funds. With a limited branch network and lower share of current and saving accounts, the cost of funds tends to be higher for us,” Bansal said. The average cost of funds stands around 8 per cent for Mumbai-based public sector bank.

IDBI Bank has raised Rs 3,000 crore through bonds so far in 2008-09. These bonds have five year maturity and funds will be deployed for long term projects. The interest rate offered for 10-year bonds were in the range of 11.20-11.30 per cent.

Exim Bank executive director N Shankar said the extent of drop in yields is less for corporate bonds than government paper. “Still it will mean a substantial cost savings if institutions are able to raise funds at lower rates,” he said.

The export credit agency has raised Rs 7,000 crore through bonds and short-term paper during the current financial year. While part of it has been deployed in lending operation, some funds have been used for repayment of bonds which are redeemed on maturity.