PNB plans to raise up to Rs 4,000 crore through issuance of tier-2 bonds

State-owned lender Punjab National Bank plans to raise up to Rs 4,000 crore through issuance of tier-2 bonds later this week in order to fund firm loan growth, sources said.

The bonds, which are rated AAA and AA+ by India Ratings and CARE, respectively, are likely to have a tenor of 15 years with the first call option after 10 years, the sources said. The bidding for the bond sale is likely to occur on Wednesday. The issue size is of Rs 1,000 crore with a greenshoe option of Rs 3,000 crore, the sources said.

“There is an indication that the pricing could be at 7.75-7.80 per cent. If the bidding is very far from those levels, they could take a partial amount and launch the rest in the next quarter. Rs 4,000 crore is the overall requirement for the year from what we hear in the market,” a source said.

The latest round of fundraising by banks comes at a time when credit growth has shown sustained momentum even as growth in deposits continues to lag.

The latest data released by the Reserve Bank of India showed that as on November 4, bank credit growth was at 17 per cent year-on-year while deposit growth was at 8.2 per cent.

Over the past few days, multiple banks, including country’s largest lender State Bank of India, have announced plans to raise funds via debt sales. SBI said last week that it planned to raise up to Rs 10,000 crore worth of infrastructure bonds in the current financial year.

Another public sector lender, Union Bank of India, also said last week it was planning to raise up to Rs 2,200 crore via the sale of tier-2 debt.

The slew of bond sales comes at a time when lower supply of corporate bonds and a decline in sovereign bond yields have made it cheaper to tap debt markets. Yields on five-year and 10-year government bonds have declined 22 basis points and 26 bps, respectively, so far in November. Yields on corporate bonds have also declined around 15-17 bps so far this month, traders said. Government bonds are the benchmarks for pricing corporate debt.