Banks on fund-raising spree as demand for credit zooms

l Credit growth rate at 9-10% now as against 5-6% last year

l SBI had raised Rs7,000 cr early this month

l Canara Bank mobilized Rs2,000 cr

l SBI plans to raise Rs4,000 cr more

Mumbai: As the demand for credit is expected to go up due to the ongoing festive and Kharif crop season, banks are now busy raising funds to meet the growing demand. The credit growth, which was 5-6 per cent last year, is 9-10 per cent as of now. The Finance Ministry has also issued guidance to the banks to be ready for credit offtake.

Country's largest lender State Bank of India (SBI), Canara Bank, Union Bank of India, Punjab National Bank, and Bank of Maharashtra (BoM) have already done fund raising via perpetual bond recently. While SBI had raised Rs7,000 crore earlier this month with a yield of 7.75 per cent, Canara Bank mopped up Rs2,000 crore at 7.99 per cent last week.

After raising perpetual bonds, a bank can raise money to the tune of 50 per cent of its equity under Tier 1 or Tier-II bonds. Public sector SBI and another state-run lender, Union Bank of India, are set to raise Rs5,500 crore in 15-year bonds in the domestic market. SBI plans to raise Rs4,000 crore in 15-year papers with a 10- year call option that allows early exit for investors should the lender exercise the option.

The bonds, rather rare because of their long tenures, would be sold through auctions early next week. The bank is said to be in talks with LIC, UTI, HDFC Life and ICICI Prudential Life for subscriptions.

SBI Capital Market is the sole arranger in the bond sale. The proposed SBI bonds may offer coupons in the range of 7.40-7.50 per cent, which will finally be determined through a bidding process.

Talking to Bizz Buzz, Ajay Manglunia, Managing Director and Head of Debt Capital Market, JM Financial, says: "Issuance are happening at a time when for 10 yr govt security is having a yield of 7.42 per cent annual and perpetual is 7.75-8 per cent, while Tier-2 is in the range of 7.40 per cent to 7.50% and is always lucrative for raising fund."

Interestingly, PNB is also going for fund raising through perpetual bond for Rs2,000 crore. Union Bank had raised Rs2,000 crore last month, despite rate hike and because of better market appetite, bank has been able to offer its capital bonds at historic lower spread in recent past, he said.

All the other banks ware also likely to go for Rs2,000-3,000 crore of bond issuances in the near future. Even private banks, which are well capitalised, may also go for fund raising adopting the same route in days to come. It is obvious that banks are raising funds to meet the increasing demand for retail loans thanks to the ongoing festive season.

Issuance is happening at a time when for 10 yr govt security is having a yield of 7.42% annual and perpetual is 7.75-8.00%, while Tier-2 is in the range of 7.40% to 7.50% and is always lucrative for raising fund

- Ajay Manglunia, MD & Head (Debt Capital Market), JM Financial