Banks Preferring Debentures To Park Surplus

Banks are increasingly diverting their surplus funds towards debentures of better-rated corporates, with the Reserve Bank of India (RBI) excluding the debentures from the 5 per cent ceiling of a banks investments in the latest monetary policy.

The RBI had, in the latest monetary and credit policy, given freedom to the banks to invest in debentures without limit while the 5 per cent ceiling on incremental deposits has been limited only to shares. Major banks have started using this route to accommodate the better-rated corporates and are picking up debentures to park their funds.

At present, Bharat Forge is in the market for raising funds via debentures and a host of corporates are also expected to follow suit. Many people are just testing the waters at present, but it the market may get aggressive later. Though the market is seeing issues of short and medium term, the preference is definitely for issues with a better rating. The better-rated companies are now able to access funds at near prime lending rates of banks from the market, said a senior official at TimesBank.

The banks are actively scouting the markets for attractive investments for short and medium term investments. The preference is definitely for instruments which have a short tenure. The interest rates are expected to firm up by then and this will allow us for utilising the funds at that point of time in a more profitable way, said an investment banker with a public sector investment banking outfit.

The investment opportunities with maturities between 6 months and 12 months would be more attractive, said a private sector investment banker.

The expectations are of increased credit requirements in a few months time and the debenture route is for temporary parking of the banks surpluses, he added. Though credit rating has assumed greater importance, according to the bankers it will be the slightly better-off corporates which will be able to get their issues through.

The risk assessing capacities of banks has to undergo a tremendous change, the bankers said. The consistent fund raising programmes of the government is unlikely to affect the plans of corporates.