Banks in demand

Eleven banks rose by 0.10% to 2.61% at 9:55 IST on BSE after the Reserve Bank of India on Tuesday, 15 July 2014, announced incentives to raise long term bonds for infrastructure financing.

ICICI Bank (up 2.61%), Federal Bank (up 1.73%), Union Bank of India (up 1.65%), State Bank of India (up 1.65%), Axis Bank (up 1.42%), Bank of India (up 0.56%), IDBI Bank (up 0.48%), Canara Bank (up 0.34%), Bank of Baroda (up 0.23%), Punjab National Bank (up 0.18%) and Yes Bank (up 0.10%), edged higher.

However, IndusInd Bank (down 0.65%), HDFC Bank (down 0.59%) and Kotak Mahindra Bank (down 0.16%), edged lower.

The S&P BSE Bankex was up 0.90% at 17,207.32. It outperformed the S&P BSE Sensex, which was up 0.36% at 25,318.69.

The S&P BSE Bankex had underperformed the market over the past one month till 15 July 2014, falling 1.48% compared with the Sensex being flat in the same period. The index had, however, outperformed the market in past one quarter, rising 18.54% as against Sensex's 12.20% rise.

The Reserve Bank of India (RBI) said that banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long term projects in infrastructure sub-sectors and affordable housing. The minimum maturity period of the long-term bonds shall be seven years. These bonds will be exempted from computation of net demand and time liabilities (NDTL) and would not be subjected to cash reserve ratio (CRR)/statutory liquidity ratio (SLR) requirements. This exemption will be subject to a ceiling of the eligible credit which has been decided by the RBI.

RBI's regulatory incentives for infrastructure financing come after Finance Minister Arun Jaitley on 10 July 2014 said at the time of presentation of Union Budget 2014-15 that banks will be permitted to raise long-term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending.

The RBI on Tuesday also said that it has issued a number of instructions to banks, specifying the operational guidelines and incentives in the form of flexibility in loan structuring and refinancing so as to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors.

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