According to individuals familiar with the matter, the state-owned Bank of Baroda (BoB) raised Rs 5,000 crore on Monday via ten-year infrastructure bonds at a coupon rate of 7.30%. CRISIL Ratings rated BoB's bond offering AAA. The basic issue amount was Rs 2,000 crore, with a greenshoe option of Rs 3,000 crore. Investors purchased the whole issuance.
A dealer at a state-owned bank stated that 10-year government securities rates had declined, resulting in a lower cut-off rate for BoB than the State Bank of India (SBI). He also stated that the cut-off rates for future infrastructure bond issuance are projected to be between 7.30 and 7.35 percent for state-owned banks and 7.35 to 7.40 percent for private banks.
Banks, particularly state-owned banks, have rushed to raise capital through infrastructure bonds. Previously, the country's largest lender, State Bank of India (SBI), raised Rs 20,000 crore in two tranches with 15-year infrastructure bonds yielding 7.36%. The first tranche of Rs 10,000 crore was raised in June, and the second in July. Furthermore, Canara Bank raised Rs 10,000 crore through 10-year infrastructure bonds at 7.40 percent, while Bank of India raised Rs 5,000 crore via 10-year instruments at 7.54 percent.
Meanwhile, earlier this month, the Bank of Maharashtra issued a 10-year infrastructure bond with a yield rate of 7.8%, raising Rs 811 crore. The issue's base size was Rs 500 crore, with a greenshoe option of Rs 2,500 crore. Over the previous several months, state-owned banks have raised a total of Rs 35,811 crore through infrastructure bonds.
Funds obtained through infrastructure bonds are appealing to banks because they are free from regulatory reserve requirements such as the statutory liquidity ratio (SLR) and cash reserve ratio. Infrastructure bond proceeds can be completely utilized in lending operations, as opposed to deposits, which require banks to hold 4.5 percent of the amount as CRR with the Reserve Bank of India (RBI) and invest around 18% in securities to fulfill SLR commitments.
Infrastructure bonds have a minimum maturity of seven years, and the revenues are used by banks to support long-term infrastructure projects.
