Mumbai: Bank of Baroda (BoB) has pipped larger public and private sector lenders in a keenly contested ₹5,000 crore loan deal for state-owned steelmaker SAIL.
BoB’s bid at 7.49% for a five-year loan was the lowest and linked to the 364-day treasury bill, people familiar with the deal said.
“All large and medium-sized public and private sector banks participated in the bidding for this because SAIL is a government-owned Maharatna company with absolutely no risk. But BoB’s bid was very aggressive and much below others,” said a person familiar with the details.
In large loan deals like this, companies usually seek bids from lenders with the lowest bidder getting preference. Though the bids are in a sealed cover, all lenders are informed about the bids after they are opened. SAIL will use the proceeds of the loan to fund its capital expenditure and working capital requirements and is drawable in multiple tranches in the next few months.
“Such AAA deals are usually contested very intensely. BoB’s bid indicates that the bank was not seeking to make money out of this deal but it was more to increase its loan portfolio because at this rate it is very difficult to make money, especially at a time when the deposit rates are high,” said a second person aware of the deal.
BoB and SAIL did not reply to an email seeking comment.
BoB was selected among lenders earlier this month. The cut-off for the Reserve Bank of India’s (RBI) weekly auction of the 364-day treasury bill in the first week of August was 6.73%, implying that the loan was priced at 76 basis points above the benchmark paper. One basis point is 0.01 percentage point.
To put the interest rate in perspective, the deal was below BoB’s average yield on advances of 8.55% recorded in the first quarter of the fiscal.
Taking into account the bank’s average cost of deposits at 5.06% at the end of June, the margin on this loan comes to about 243 bps which is lower than the 318 bps recorded at the end of the first quarter.
Risk weights on state-owned companies are also lower, making it more lucrative for banks to lend to them.
