Bank of Baroda on Friday raised Rs 5,000 crore through the sale of infrastructure bonds, garnering long-term funds to finance demand for loans amid a slower pace of deposit growth.
The bank issued 10-year infrastructure bonds at a coupon rate of 7.26%, with the state-owned lender receiving 105 bids worth Rs 14,215 crore for the sale, debt capital market executives said. The issuance had a base size of Rs 2,000 crore and a greenshoe option of Rs 3,000 crore.
The latest bond sale is Bank of Baroda’s second consecutive infrastructure bond issuance in two successive weeks, with the lender raising Rs 5000 crore at 7.30% through a sale on August 26.
With investors, particularly long-term players, showing firm demand for the bank’s bonds, the state-owned lender decided to carry out back-to-back debt sales, dealers said.
On Wednesday, yield on the 10-year benchmark government bond closed at 6.85%. Sovereign bonds are the benchmarks used to price corporate bonds.
Bank credit growth has persistently outstripped deposit growth over the past couple of years, exerting pressure on lenders to mobilise funds through higher deposit rates or issuances of debt instruments. In this scenario, infrastructure bonds help banks manage their interest rate margins more efficiently as the exemptions from reserve requirements for these instruments bring down cost of funds.
Funds raised through infrastructure bonds are exempt from the regulatory requirement of maintaining Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
As on August 23, bank deposit growth was at 11.3% year-on-year while credit growth was at 15.0%, latest data released by the Reserve Bank of India showed.
So far in FY25, banks have issued infrastructure bonds worth around Rs 52,500 crore, treasury executives said. The country’s largest lender State Bank of India has led the pack with total infrastructure bond issuances worth Rs 20,000 crore so far in the year.
