State Bank of India(SBI) on Wednesday raised Rs 10,000 crore through the issuance of infrastructure bonds, while two other public sector lenders – Canara Bank and Bank of India – are likely to tap the debt market next week to raise a total of up to Rs 15,000 crore through the same instrument.
SBI raised the funds through 15-year infrastructure bonds at a coupon rate of 7.36%, identical to the rate that was set at another infrastructure bond issuance on June 26, also for Rs 10,000 crore, the bank informed exchanges.
The issuance witnessed firm demand, with SBI receiving bids in excess of Rs 18,145 crore from investors such as provident funds, pension funds, insurance companies, mutual funds and corporates, the bank said. The proceeds will be used for funding infrastructure and the affordable housing segment, SBI said.
Canara Bank and Bank of India are likely to carry out their bond issuances around July 18-19, debt capital market sources said.
“Canara Bank’s infrastructure bond issuance will likely be of 15-year maturity and the bank is targeting a fund-raise of around Rs 5,000-Rs 10,000 crore through the bond sale,” a market source said.
Bank of India is likely to issue 10-year infrastructure bonds worth up to Rs 5,000 crore next week.
Opting for infrastructure bonds to raise funds helps lenders to manage their interest costs deftly as the money raised through these instruments is exempt from the requirement to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
Infrastructure bonds have a minimum maturity of seven years. These instruments are issued by banks to raise funds for lending to long-term infrastructure projects.
At present, banks face intense pressure to mobilise funds as deposit growth is much slower than credit growth. Net interest margins for the banking system have declined over the past year as lenders have resorted to increasing deposit rates to garner funds.
In this scenario, infrastructure bonds help banks manage their interest rate margins more efficiently as the exemptions from reserve requirements for these instruments bring down cost of funds.
Banks have also stepped up borrowings through money market instruments and certain kinds of bonds, with borrowing rising 60% year-over-year to a fortnightly average of Rs 7.7 lakh crore in April-June, Reserve Bank of India data showed.
For SBI, Wednesday’s bond issuance marks the end of its long-term bond issuances for the current financial year, as the lender had said that it plans to raise a total of Rs 20,000 crore through such instruments in FY25.
Accounting for Wednesday’s issuance, the total long-term bonds issued by SBI stands at Rs 59,718 crore. Typically, bonds issued by the country’s largest bank bear the lowest rate of interest amongst bonds issued by other lenders.
