PSU banks eye infra bond issuances, await softer yields

Subscribe to enjoy similar stories. MUMBAI : State-run lenders, including Canara Bank, Bank of Baroda, Bank of Maharashtra and Bank of India, are preparing to tap the debt market through infrastructure bonds in early March, but are holding off the issuances as they wait for borrowing costs to ease, three debt merchant bankers aware of the discussions told Mint.

This underscores lenders' funding pressures: with growth in deposits lagging credit, banks are seeking long-term, regulation-efficient funding even as elevated corporate bond yields have made such issuances costly for now. Bankers say the timing hinges on expectations of further liquidity support from the central bank to bring rates down.

Bankers and market participants said lenders are sounding out investors on their plans, but will move ahead only if pricing turns favourable. “All these banks are looking at infrastructure bonds and having discussions with investors and merchant bankers.

Looks like they would probably look at the first week of March, as they are trying to get good rates," said a senior treasury official at a public sector bank. Rates on banks' certificate of deposits (CDs) have slightly eased in recent days but longer-tenor corporate bond yields remain elevated, making infra bond issuances expensive at the current levels.

The yield on the 10-year benchmark corporate bond issued by National Bank for Agriculture and Rural Development is currently at 7.45%, up 6-8 basis points since the Reserve Bank of India’s recent policy announcement that had disappointed the bond markets due to lack of fresh liquidity measures. The bond market now expects RBI to not conduct variable rate reverse repo auctions and instead continue with variable rate repo auctions