Long, Short-Term Rates To Decline

ICICI borrowing rate down 50 bps

The Industrial Credit and Investment Corporation of India (ICICI) has slashed both its long term and short term borrowing rates by 40 to 50 basis points. This follows the RBI cut in the bank rate on Wednesday by one per cent.

The Industrial Development Bank of India (IDBI), faced with a surge in demand for their Omni bonds priced at 13.5 per cent, is also expected to cut its rates. Following the reduction in the bank rate, the five-year bond issue of the IDBI saw a massive rise in demand yesterday in comparison to the earlier lukewarm response it had evoked.

 

The ICICI, which was offering 14.25 per cent on its five-year on tap bonds, reduced the rates by 40 basis points to 13.85 per cent while the interest rate on its one-year paper was cut by 50 basis points to 10.5 per cent yesterday.

Says Kalpana Morparia, general manager, ICICI, We cut the interest rates on the on tap bonds following the huge demand for our paper. Once the demand picked up we stopped offering the high rates and were able to pick up a substantial chunk of funds at the low rates.

The ICICI has picked up Rs 100 crore at the new rates and the demand is expected to continue for the next few days.

Banks were reportedly selling a portion of their stock of long term government paper with a view to subscribing to the 13.50 per cent IDBI omni bonds. A return of 13.50 per cent for five years offered by the IDBI would be deemed attractive considering that a 10-year government paper is at present fetching 12.60 per cent while a seven year paper is being traded in the region of 12.53 per cent. Moreover, the yield on the IDBI issue works out to 14.2 per cent.

A further reduction of secondary market yields in the government securities market is most likely because the appetite of the banks for low risk instruments is not yet satiated. Owing to this, banks are likely to flock to pick up the IDBI bonds.

The size of the issue is Rs 1,000 crore including the green shoe option of Rs 500 crore. It remains to be seen what amount the issue finally rakes in, considering the lukewarm response which it had evoked initially. It is likely that the IDBI might not exercise the green shoe option.

The Industrial Credit and Investment Corporation of India (ICICI) has slashed both its long term and short term borrowing rates by 40 to 50 basis points. This follows the RBI cut in the bank rate on Wednesday by one per cent.

The Industrial Development Bank of India (IDBI), faced with a surge in demand for their Omni bonds priced at 13.5 per cent, is also expected to cut its rates. Following the reduction in the bank rate, the five-year bond issue of the IDBI saw a massive rise in demand yesterday in comparison to the earlier lukewarm response it had evoked.

The ICICI, which was offering 14.25 per cent on its five-year on tap bonds, reduced the rates by 40 basis points to 13.85 per cent while the interest rate on its one-year paper was cut by 50 basis points to 10.5 per cent yesterday.

Says Kalpana Morparia, general manager, ICICI, We cut the interest rates on the on tap bonds following the huge demand for our paper. Once the demand picked up we stopped offering the high rates and were able to pick up a substantial chunk of funds at the low rates. The ICICI has picked up Rs 100 crore at the new rates and the demand is expected to continue for the next few days.

According to Morparia, the interest for on tap bonds has been for the five-year and the one-year paper and hence rates have been cut for these maturities.

Banks were reportedly selling a portion of their stock of long term government paper with a view to subscribing to the 13.50 per cent IDBI omni bonds. A return of 13.50 per cent for five years offered by the IDBI would be deemed attractive considering that a 10-year government paper is at present fetching 12.60 per cent while a seven year paper is being traded in the region of 12.53 per cent. Moreover, the yield on the IDBI issue works out to 14.2 per cent.

A further reduction of secondary market yields in the government securities market is most likely because the appetite of the banks for low risk instruments is not yet satiated. Owing to this, banks are likely to flock to pick up the IDBI bonds.

The size of the issue is Rs 1,000 crore including the green shoe option of Rs 500 crore. It remains to be seen what amount the issue finally rakes in, considering the lukewarm response which it had evoked initially. It is likely that the IDBI might not exercise the green shoe option.