Indian banks raise US$2b via infrastructure bonds in 2 weeks

INDIAN banks have raised US$2 billion through infrastructure bonds over the last two weeks, anticipating a revival in private capital expenditure and increased government spending, analysts said.

Two private lenders and one state-run bank have tapped the market to raise funds using these bonds in this period. Last week, the nation’s largest lender, the State Bank of India, raised 100 billion rupees (S$1.6 billion) in the largest such issue.

“There is a revival in demand for infrastructure funds as economic activity picks up,” said Ajay Manglunia, managing director and head of investment grade group at JM Financial. “Hence banks that are focused on this sector are raising huge sums of money which would be deployed,” he added.

Infrastructure bonds are issued to finance long-term development projects.

Other banks that have raised similar funds include ICICI Bank, which concluded a 50-billion-rupee seven-year bond issue this week, and Kotak Mahindra Bank, which garnered 15 billion rupees.

Several private lenders like Axis Bank and HDFC Bank are also planning infrastructure bonds in the coming weeks, said merchant bankers, who spoke on condition of anonymity since their plans have yet to be firmed.

Both banks were not immediately available for comment.

ICICI Bank and Bank of Baroda have already tapped the market in the August-to-September period, raising an aggregate 31 billion rupees.

“Banks are trying to fund their credit growth as economic activity is picking up, given the shape of their balance sheet, and all this push for capital expenditure activity,” said Pankaj Pathak, a fund manager at Quantum Mutual Fund.

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“If credit growth remains healthy, it will lead to more bond issuances,” he added.

India’s economy grew at 6.3 per cent in the July-to-September period, and is expected to grow by 6.8 per cent this financial year, with both private consumption and investment slowing amid rising inflation.

Banks are also taking advantage of a recent dip in Indian government bond yield.

While ICICI Bank and Kotak Mahindra Bank paid an annual coupon of 7.63 per cent each for their seven-year bonds, SBI paid 7.51 per cent on its 10-year infra bonds.

The benchmark 10-year bond was trading at a semi-annual yield of 7.3 per cent.

“If you look at the rates that banks are getting currently, it is very fine, so they are raising additional capital, which also allows them a cushion in times of tight liquidity,” said Soumyajit Niyogi, director for core analytical group at India Ratings & Research. REUTERS