Lenders delay infrastructure bonds issue in hope of rate cut

Several banks that were planning to raise funds through long-term infrastructure bonds have been going rather slow on it.

Some banks have postponed their plans, thanks to sluggish credit demand and an expectation of a rate cut from the Reserve Bank of India (RBI), which will bring down the cost of fund raising Stock Market Tips

YES Bank, Bank of Baroda, Andhra Bank, IDBI Bank and Bank of Maharashtra had chalked out plans to raise money through this route. Axis Bank is in the process of raising funds.

Andhra Bank, which was earlier planning to raise Rs 1,000 crore through infrastructure bonds, has raised only Rs 200 crore so far. YES Bank had also taken the board approval to raise Rs 3,000 crore, but is yet to take shareholders' approval Intraday Trading Tips

"The market expectation is that interest rates will come down. Raising money at such high rates might not be a very good idea for any bank. Moreover, these are long-term bonds, so the money will be locked in at a high rate of interest for at least seven years and the market has been expecting a rate cut for some time now. On these long-term instruments, a saving of 25-50 basis points will also make a huge difference and that is the reason why banks have been going slow," said a treasury official from a public sector bank Commodity Trading Tips

The rush to raise money through long-term bonds had picked up, after RBI earlier this year had announced that long-term bonds (tenor of more than seven years) will be exempt from cash and statutory reserve requirements, if the proceeds were used to fund new long-term infrastructure projects and affordable housing. Also, the loans funded via this process will be exempt from the computation of adjusted net bank credit for the purpose of calculating priority sector lending requirements Nifty Trading Tips

Vikram Limaye, MD & CEO of IDFC, says the fact that the money raised can be used only to fund new long-term infrastructure projects is yet another reason that the banks are going slow on it. "If you look at the infrastructure sector, then you can see that the growth is really slow. The caveat is that the money can be used only for funding new projects and that has not yet started. Therefore, banks are choosing to go slow as even if they raise it they can't deploy it anywhere."

Investment demand is yet to show an improvement, say bankers. In the past one year, credit growth was up by 11.17 per cent, in the period ended October 17, bank credit was recorded at Rs 62,72,621 crore up from Rs 56,41,910 crore a year ago, according to RBI data Financial Astrology Trading Tips

Bank executives said the retail credit has been growing steady but the demand from the corporate sector still remains weak due to slow growth.

"Credit offtake is still very slow and so banks don't really see the need to raise these bonds at this moment, despite approvals in place," said Rupa Rege Nitsure, chief economist, Bank of Baroda Personal Numerology Tips

BENEFITS OF INFRA BONDS...

Funds raised via long-tem infra bonds (with tenure of 7 years or more) are exempted from the mandatory CRR and SLR requirements   The funds raised will have to be used to finance new long-term infrastructure projects and affordable housing   Also, loans funded via this process will be exempted from the computation of adjusted net bank credit for the purpose of calculating priority sector lending requirements Jackpot Trading Tips