Analysts predict that Indian banks will continue their fundraising frenzy in the coming months by issuing Basel III-compliant and infrastructure bonds in order to fulfill increased credit demand and lock in money at lower rates.
“All banks are in need of funds as second half is expected to see a pick up in credit off take, and currently investors appetite is favourable,” said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Finacp. “We can see more banks issuing Basel III- compliant as well as infrastructure bonds, with funds getting easily absorbed over the next quarter,” he said.
According to market participants, bank bond issuances might reach $500 billion ($6.21 billion) this fiscal year, with the majority of the offerings taking place in the next quarter. In the previous three months, state-owned banks have raised $281 billion through a combination of Basel III-compliant extra Tier I perpetual bonds, Tier II bonds, and infrastructure bonds.
According to Reserve Bank of India data, credit growth in Indian banks was 15.4 per cent year on year in the 14 days ending Aug. 26. State Bank of India is the largest lender, having raised 109 billion rupees through perpetual and Tier II bonds, but is unlikely to borrow further, according to dealers.
They said that regular bond issuance from other state-run and commercial banks is expected to continue.
Canara Bank raised money in September at a 25 basis point lower rate than in July, as rates fell. Meanwhile, Union Bank of India is anticipated to issue perpetual and Tier II notes in the next days to raise roughly 20-30 billion rupees, while private lenders ICICI Bank and Axis Bank are also expected to raise 60-80 billion rupees through perpetual bonds, according to a banker with a brokerage.
Similarly, traders predict perpetual bond issuances from the Bank of India and the Punjab National Bank, as well as infrastructure bond issuances from HDFC Bank, Axis Bank, and Kotak Mahindra Bank.
Banks must cushion their capital position in addition to satisfying lending demand. Liquidity in India’s banking sector has fallen into a deficit and is projected to remain tight in the second half. According to merchants, the central bank’s shove to retain adequate capital has resulted in banks beefing up cash.