Nabard, Sidbi raise Rs 14K cr amid demand for short to medium tenor bonds

This marks a shift from their usual preference for long-tenor bonds, as an oversupply of such bonds has driven yields higher

Major state-owned issuers, including National Bank for Agriculture and Rural Development (Nabard) and Small Industries Development Bank of India (Sidbi), on Wednesday raised Rs 14,000 crore through medium and short tenor bonds.

 

This is a shift from their usual preference for long-tenor debt, as an oversupply of such bonds has driven yields higher. 

 

Additionally, expectations of successive rate cuts by the Reserve Bank of India (RBI) in April and June have prompted issuers to opt for shorter tenures. Borrowing long term will be more cost effective once yields on longer-tenor bonds decline after the rate cuts, said market participants.

 

Nabard on Wednesday raised Rs 7,000 crore at a coupon rate of 7.48 per cent through bonds maturing in 3.5 years. Sidbi, on the other hand, mopped up Rs 6,000 crore at a coupon rate of 7.39 per cent through bonds maturing in 5 years, sources said. 

 

Interestingly, the issuers successfully raised the full amount they had planned, unlike earlier instances when they had to settle for a lower amount in long-term bonds due to yield pressures.

 

Meanwhile, state-owned Indian Renewable Energy Development Agency (Ireda) raised Rs 1,247 crore at a cut off of 8.4 per cent through perpetual bonds, which have a call option in 10 years. Ireda was looking to raise Rs 2,000 crore but decided on Rs 1,247 crore, sources said.

 

Earlier this week, REC raised Rs 3,000 crore through three-year bonds at a cut off of 7.44 per cent. Additionally, it raised Rs 2,780 crore at a coupon rate of 7.32 per cent through long-term bonds maturing in nine years and 11 months. 

 

“Given the expectations of rate cuts in April / June, issuers are adjusting their strategies. Rather than locking in long-term bonds, many are opting for short and medium term bonds despite the elevated cost. This aligns with investor preferences, as demand has shifted towards the 3-5 year segment, where traders and mutual funds see better tactical opportunities,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP.

 

“Despite the tight liquidity, AAA-rated public sector undertakings (PSUs) continue to attract strong interest. Mutual funds and traders are accumulating these bonds, anticipating potential capital gains if rates decline next financial year. Even in the private sector, large investors — including mutual funds — are stepping in as anchor buyers for select issuances,” he said.

 

The RBI’s monetary policy committee (MPC) cut policy rates by 25 basis points (bps) in February, and the market expects at least two more rate cuts in April and June. This would be driven by the latest inflation print falling below 4 per cent and the need for a monetary push to support economic growth.

 

Meanwhile, Housing and Urban Development Corporation (Hudco) is planning to raise Rs 2,500–3,000 crore.