County’s largest private sector lender ICICI Bank is the process of raising about Rs 3,000 crore by selling infrastructure bonds amid hopes of better loan growth this financial year, people familiar with the matter told ET. The bank is offering these bonds at 7.42-7.47% with seven and ten-year maturities.
An email sent to ICICI Bank remained unanswered until the time of going to the press.
“ICICI Bank issuance is divided into two tranches. While it has already sold Rs 1,500 crore worth of bonds, the bank is in process of selling another part amid positive investor response,” said a person with the direct knowledge of the matter.
This offering is 18 basis points lower than the 7.6% the bank had offered when it raised Rs 4,000 crore via infrastructure bonds on seven-year maturity in October last year.
In the past one month, the benchmark bond yield has slipped about 25 basis points helping companies to lower borrowing costs. Bonds are priced in proportion to the sovereign yields.
Axis Bank, another large lender, has raised Rs 3,500 crore by selling perpetual bonds that offer 8.75% to shore up their capital base.
Shashikant Rathi, head of treasuries and markets, Axis Bank, has confirmed the matter, but declined to disclose details ahead of its quarterly earnings.
The bank’s capital adequacy ratio, a gauge of its capital strength, should improve by 50-60 basis points after the bond sale, dealers said. A basis point is one hundredth of a percentage point.
Top mutual fund houses, provident funds and a few insurers have invested in those bonds, dealers said. Axis bonds have a five-year ‘call option’ –– a clause which allows the issuer to extinguish the liability after the stipulated period.
“The market is bracing up for large bond sales amid economic optimism,” said Ajay Manglunia, executive vice-president, Edelweiss Financial Services. “Institutions raising funds via bond-sales are also benefiting from lower cost of funds with a falling benchmark yield. Investor appetite too is high as borrowers are expected to tap the market more frequently in the coming months.”
Lenders enjoy certain regulatory exemptions through infra bonds mop-ups. These include RBI’s cash reserve ratio or CRR (now at 4%) and statutory liquidity ratio or SLR (now at 20.50%) requirements.
Banks set aside a portion of their total deposits as CRR and they are mandated to invest a share of the same in government securities through SLR mechanism.
“Large institutional investors usually do not leave any opportunity to invest in top-rated banks,” said Lakhsmi Iyer, CIO, Kotak MF. “Private banks, a preferred bet for investors usually would require more capital to lend more while investors could earn a few basis points higher than the average AAA rates.”
Under the Basel-III requirement, an international capital standard, perpetual bonds or AT1 securities are more of a quasi-equity obligation, and they are rated one or a few notches lower than the issuer’s overall credit rating.