State-run firms taper debt fundraise on rate-cut hopes ahead of MPC meet

₹14,735 cr raised against ₹24,800 cr plan as PFC, Nabard pull short-term bonds

Small Industries Development Bank of India (Sidbi), PFC, Axis Bank, and Sundaram Finance together raised ₹14,735 crore in the domestic debt capital market on Tuesday, well below the roughly ₹25,000 crore that had been expected, after issuers including PFC and the National Bank for Agriculture and Rural Development (Nabard) pulled their short-term offerings.

 

The withdrawals were prompted by expectations of a repo rate cut at next month’s Monetary Policy Committee (MPC) meeting, which could drive down short-term rates and make it more advantageous for issuers to raise funds later.

 

The softer issuance follows comments on Monday by Reserve Bank of India Governor Sanjay Malhotra, who said the scope for further rate cuts, signalled during the October policy meeting, had not narrowed, as suggested by the latest data. The yield on the 10-year benchmark government bond fell after his remarks.

 

His comments come a week ahead of the MPC’s six-member meeting, which begins on December 3. The policy decision will be announced on December 5.

 

State-owned PFC and Nabard withdrew their planned ₹3,000 crore and ₹7,000 crore bond issues respectively. Both offerings had a tenor of slightly more than three years.

 

Sidbi nevertheless raised ₹5,935 crore via 37-month bonds at a cut-off of 6.74 per cent, against a target of ₹6,000 crore. PFC, meanwhile, raised ₹3,000 crore through 10-year bonds priced at 7.08 per cent.

 

Axis Bank, India’s third-largest private sector lender, also tapped the market on Tuesday, raising ₹5,000 crore at 7.27 per cent through 10-year infrastructure bonds, the first infrastructure bond issuance by a lender in the current financial year. Sundaram Finance likewise raised ₹800 crore, of which ₹240 crore came from anchor investors.

 

“Nabard withdrew because Sidbi’s issue closed at 6.74 per cent. Nabard’s base was also done at 6.74 per cent, while its full issuance was getting priced at 6.78 per cent. It was expecting a more favourable rate, which did not materialise,” said a dealer at a state-owned bank.

 

The dealer further said: “PFC, meanwhile, secured an attractive rate of 7.08 per cent in the 10-year segment, which was significantly better than many SDLs, so it was not keen on a short-term issuance. Both Nabard and PFC may return after December 5.” 

 

Market participants have now begun factoring in a 25-basis-point repo rate cut, the dealer added.

 

According to market insiders, shorter-tenor supply proved difficult to absorb, prompting both PFC and Nabard to withdraw their three-year tranches, while Sidbi managed to place nearly its full ₹6,000 crore. In contrast, Axis Bank and PFC proceeded with their longer-tenor offerings, where investor appetite remained steady.

 

“This divergence in outcomes clearly reflects the shifting tone within the market. Many issuers appear increasingly reluctant to lock in short-term money at elevated levels, especially with expectations building around a potential rate cut in the upcoming monetary policy,” said Venkatakrishnan Srinivasan, founder & managing partner, Rockfort Fincap LLP. He added that large institutional investors, particularly those governed by regulatory allocation norms, are showing a stronger preference for long-tenor bonds that meet duration requirements.

 

The short end, meanwhile, faced a supply glut of nearly ₹17,000 crore in a single day, pushing yields higher and making pricing unattractive for issuers.

 

“These developments indicate that while long-term demand remains steady and well-supported, short-term supply will need more careful timing. The market is clearly positioning ahead of the policy review, and issuers are becoming more tactical in their timing and tenors,” he said.

 

Market insiders said state-owned Canara Bank is now preparing to tap the market this week for tier II bonds, with more banks expected to issue tier II paper in December. In the last quarter (Q4), several infrastructure bond issuances are also anticipated.

 

“I am expecting a rate cut, but there is no price clarity. The market is divided. We may see an accommodative stance, but an actual rate cut may not occur. Today, Nabard and PFC withdrew their issuances as they were not satisfied with the pricing. They may return after December 5, depending on how the market evolves,” said another market participant.