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    State-owned banks start a bond fire with a flurry of issues

    Synopsis

    Syndicate Bank, Bank of Maharashtra, Dena Bank, Bank of Baroda, Central Bank of India and Andhra Bank aim to mop up a total of about Rs 8,000-9,000 crore.

    ET Bureau
    MUMBAI: Several small and medium state-owned banks plan to raise funds by selling bonds following finance minister Arun Jaitley's call for all public sector banks to support loan growth while devising ways to bring down bad loans.

    Syndicate Bank, Bank of Maharashtra, Dena Bank, Bank of Baroda, Central Bank of India and Andhra Bank aim to mop up a total of about Rs 8,000-9,000 crore in the current financial year, market people familiar with the matter told ET.

    All bonds will be Basel-III compliant, a global standard for capital requirement.

    Bangalore-based Syndicate Bank is expected to be the first one off the block, selling 10-year bonds to raise up to Rs 1,500 crore in 2014-15 to shore up its capital base. “We are planning to raise funds through tier-II bond sales. Our board has approved it as we need to fund our credit expansion,“ said a senior official from the bank.

    Syndicate Bank may sell the bonds in two tranches as it expects rate cuts in coming days. It may sell Rs 750-1,000 crore in the first tranche before the month-end.

    Syndicate Bank is in discussions with arrangers, which have already quoted 8.98-9%, about 68 basis points higher than the benchmark government bond yield on an annualised basis. Market sources said the bank is asking for 8.95% rate. “The bank has approached LIC of India to place those AA+ rated bonds privately. The largest insurer may have asked a higher rate at 9.05%,“ said one of them.

    Bank of Maharashtra, meanwhile, plans to collect up to Rs 1,000 crore by selling similar securities.

    “By December, we will raise up to Rs 1,000 crore additional tier-I bonds,“ its executive director R K Gupta said. “Actually, credit is expected to expand between November and March with some stalled projects opening up now. We should also see loan growth coming from retail, SME and agriculture sectors.“

    Bank of Baroda, Dena Bank, Central Bank of India and Andhra Bank, too, have plans to mobilise funds by selling bonds worth about Rs 1,500 crore, Rs 2,300 crore, Rs 1,300 crore and Rs 1,000 crore, respectively.

    Market sources said most of these banks' boards have already approved these fund-raising plans.

    Those banks could not be contacted immediately for confirmation and comments.

    According to arrangers, all lenders are expecting a fall in interest rates and, hence, they do not want to raise the full amount in one go.

    In the initial tranche, lenders would be selling bonds in the broad range of Rs 500-1,000 crore. Nirakar Pradhan, chief investment officer at Future Generali Life Insurance Company, feels that these bonds are good long-term prospects. “For any long-term investor, it makes sense to invest in these bonds with the government support, subject to their secondary market liquidity,“ he said. “BaselIII compliant perpetual or tier-I bonds should offer higher yields due to inherent risk element.“

    The benchmark bond yields have dipped 55-60 basis points in the last 5-6 months. Bond yields and prices move in the opposite direction.

    This has given an edge to all issuers whose borrowing cost has come down significantly.



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