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Banks bet on core bonds

Mumbai, July 31: Banks are joining the infrastructure bond bandwagon just days after the RBI announced key relaxations for such issues.

ICICI Bank and Andhra Bank are in the process of raising Rs 1,000 crore each through this route.

Recently, the board of Yes Bank gave its approval to raise Rs 3,000 crore through long-term bonds.

Axis Bank is also reportedly planning to come out with an issue. Bankers aver that the coming days will see many more banks doing the same.

Close to a fifth of the outstanding banking credit as on March 31 was to infrastructure and affordable housing segments.

On July 15, the RBI had said banks raising funds through long-term infrastructure bonds would not have to maintain the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR).

CRR is that portion of deposits, or resources, which must be maintained with the apex bank, while SLR is the portion of deposits that must be compulsorily invested in bonds.

The minimum maturity period of long-term bonds is seven years and they will have to be denominated in rupees only. Moreover, they should be issued in plain vanilla form without a call or put option. The relaxation in rules is expected to lead to cheaper loans to infrastructure projects and affordable housing as funding costs will come down.

However, Chanda Kochhar, managing director and CEO of ICICI Bank, today said it was early to say whether funding costs would indeed come down.

“We look at the pricing of loans based on the overall cost of funds. It is too premature to say what it (the RBI steps) will do to the overall cost of funding,” she said.

Kochhar confirmed that the bank had launched an infrastructure bond to raise Rs 500 crore. The issue also includes a greenshoe option of Rs 500 crore. She indicated that the private lender might come out with more such issues.

Meanwhile, Crisil has assigned its AA+/stable rating to the Rs 1,000-crore long-term infrastructure bonds of Andhra Bank, making it the first issue to be rated after the RBI’s revised regulations.

“Given the exemption from statutory reserve requirements and priority-sector obligations, these bonds will be cost-effective for the issuing bank. The benefit would be around 75 basis points compared with longer-maturity deposits. The bonds will also help banks to improve their asset-liability profile,” Pawan Agrawal, senior director of Crisil Ratings, said.

 
 
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