 "Andhra bank to issue Rs 1000 crore infrastructure bonds")
State-run Andhra Bank plans to raise Rs1000 crore through the issue of infrastructure bonds, becoming the first bank to tap such instruments after the Reserve Bank of India (RBI) relaxed rules to encourage banks to seek funds from market to meet a huge infrastructure funding gap in the country.
Money raised through such bonds will be used to fund infrastructure projects and affordable housing projects in the country. Under the current five year plan, the government has estimated about $1 trillion requirement to develop roads, ports and key infrastructure projects in the country.
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Rating agency, Crisil has assigned a AA stable for this instrument. The maturity and the coupon rate offered on this instrument couldn’t be ascertained immediately.
The plan was first announced by finance minister Arun Jaitley in his maiden union budget on July 10 to give a push to infrastructure development in the country.
Following the budget announcement, the Reserve Bank of India (RBI) last week issued guidelines on the issue of infrastructure bonds.
Banks do not need to comply with the statutory reserves such as CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements on money mobilized through this route.
This is because such bond issuances will not be counted as part of the banks’ normal liabilities (deposits) and hence will be exempted from CRR and SLR; loans given out to infrastructure companies will also be excluded while calculating banks’ priority sector lending (PSL) targets.
CRR is that portion of deposits banks need to park with the central bank on a fortnightly basis for no interest; SLR is the portion of funds they need to invest in government securities and PSL is
mandatory lending by banks to agriculture, micro-loans and other weaker sections of the economy.
Banks have been struggling to fund long gestation infrastructure projects due to the so-called asset-liability mismatch, which refers to the cost difference when funding long maturity loans using deposits
raised in short-maturity.
Many banks, including country’s largest private sector lender, ICCI Bank, are planning such issues.ICICI Bank is expected to raise at least Rs 500 crore through issue of 10-year bonds intended towards infrastructure lending at a semi-annual coupon of 9.15%, Reuters reported quoting two unnamed sources, on Friday. The deal could be expanded via a greenshoe option, the report said.
If the greenshoe option is indeed exercised, the issue size will go up to Rs1,000 crore. A senior official at State Bank of India (SBI), country’s largest bank, said the bank is yet to take a call on when to issue such bonds. The official didn’t want to be named.