According to analysts, Indian banks raised $2 billion through infrastructure bonds over the past two weeks in anticipation of a rebound in private capital spending and higher public spending.
During this time, the market has been used by two private lenders and one state-run bank to raise money using these bonds. The greatest such offering was last week, when State Bank of India, the country’s largest lender, raised 100 billion Indian rupees ($1.22 billion).
As economic activity increases, there is a resurgence in demand for infrastructure funds, according to JM Financial’s managing director and head of the investment grade business, Ajay Manglunia. Therefore, Manglunia continued, “banks that are focused on this area are raising enormous quantities of money that would be deployed.”
Long-term development initiatives are financed by the issuance of infrastructure bonds.
Other banks that raised comparable sums of money include Kotak Mahindra Bank, which raised 15 billion rupees, and ICICI Bank, which this week completed a 50 billion rupee seven-year bond issuance.
In the upcoming weeks, other private lenders, including Axis Bank and HDFC Bank, plan to issue infrastructure bonds as well, according to merchant bankers who spoke on the condition of anonymity because their plans had not yet been finalised.
Both banks were unavailable for comment right away.
In August and September, ICICI Bank and Bank of Baroda previously used the market to raise a combined 31 billion rupees.
Given the nature of their balance sheet and the push for capex activity, banks are attempting to fund their loan growth as the economy is starting to expand, according to Pankaj Pathak, fund manager for fixed income at Quantum Mutual Fund.
“More bond issuances will result if credit growth remains solid,” Pathak added.
The Indian economy expanded by 6.3% from July to September and is projected to expand by 6.8% this fiscal year, however private consumption and investment are expected to decelerate due to rising inflation.
Banks are also benefiting from a recent decline in the yield on Indian government bonds.
While SBI paid 7.51% on its 10-year infrastructure bonds, ICICI Bank and Kotak Mahindra Bank each received a 7.63% annual coupon for their seven-year bonds.
The benchmark 10-year bond was selling at a semi-annual yield of 7.30%. Banks were attempting to support their credit growth.
According to Soumyajit Niyogi, director for core analytical group at India Ratings & Research, “if you look at the rates that banks are getting presently, it is quite fine, therefore they are raising additional capital, which also offers them a cushion in times of limited liquidity.”
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