Bank of Baroda Secures Rs 5,000 Crore Through 10-Year Infrastructure Bonds with a 7.3% Interest Rate
The bond offering, which received a AAA rating from CRISIL Ratings, initially had a base issue size of Rs 2,000 crore and included a greenshoe option of Rs 3,000 crore.
BOB
According to informed sources, the state-owned Bank of Baroda (BoB) raised Rs 5,000 crore on Monday by issuing 10-year infrastructure bonds with a coupon rate of 7.3%. The bonds, rated AAA by CRISIL Ratings, had an initial issue size of Rs 2,000 crore and a greenshoe option of Rs 3,000 crore and were fully subscribed.
A dealer from a state-owned bank noted that the yields on 10-year government securities have decreased, leading to a lower cut-off rate for BoB compared to the State Bank of India (SBI). Typically, SBI sets the benchmark for Indian economic conditions and usually offers the lowest coupon rate.
The BoB issue experienced strong demand, a common trend for long-term bonds favoured by pension funds. The dealer also indicated that future infrastructure bond issues are anticipated to have cut-off rates ranging from 7.3% to 7.35% for state-owned banks and from 7.35% to 7.4% for private banks.
Funds raised through infrastructure bonds are appealing to banks because they are exempt from regulatory reserve requirements like the statutory liquidity ratio (SLR) and cash reserve ratio (CRR). Unlike deposit funds, which require banks to hold 4.5% as CRR with the Reserve Bank of India (RBI) and invest around 18% in securities to satisfy SLR obligations, proceeds from infrastructure bonds can be entirely used for lending activities.
State-owned banks have recently been actively raising funds through infrastructure bonds. SBI secured Rs 20,000 crore in two tranches of 15-year infrastructure bonds at a coupon rate of 7.36%. The first tranche of Rs 10,000 crore was issued in June, followed by the second tranche in July. Canara Bank raised Rs 10,000 crore through 10-year infrastructure bonds at 7.4%, while Bank of India obtained Rs 5,000 crore through 10-year bonds at 7.54%.
Additionally, the Bank of Maharashtra raised Rs 811 crore through a 10-year infrastructure bond issue with a coupon rate of 7.8% earlier this month. This issue had a base size of Rs 500 crore and a greenshoe option of Rs 2,500 crore.
In recent months, state-owned banks have collectively raised Rs 35,811 crore through infrastructure bonds. These bonds have a minimum tenor of seven years, and the funds raised are used by banks to finance long-term infrastructure projects.
