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Mumbai: Banks are scrambling to raise funds via corporate bonds as credit demand picks up. Banks such as HDFC Bank, IDFC First Bank, Dhanlaxmi Bank, Punjab National Bank, and Bank of Maharashtra will soon issue tier 2 bonds.

HDFC Bank is coming out with the largest issuance among banks, raising 15,000 crore through corporate bonds. On the other hand, IDFC First Bank plans to raise 1,500 crore while PNB plans to raise 4,000 crore. Kotak Mahindra Bank plans to raise 1,500 crore via infrastructure bonds, while State Bank of India looks for 10,000 crore.

As of now, Union Bank of India has raised a total of 2,200 crore via 15-year bonds and 10-year tier 2 bonds. Coupons on these bonds were fixed at 7.85% and 7.8%, respectively. Banks are opting for these long-term corporate bonds because they are more reasonable than a 1-year corporate deposit, which is currently pegged at 7.5-7.6%.

“After reporting good Q2 numbers and having already raised perpetual bonds, banks now have the headroom to raise tier 2 bonds. With banking system credit growing at 17%, banks require minimum capital to fund this growth," said Ajay Manglunia, managing director, JM Financial.

In recent months, credit growth has been faster than deposit growth, with the growth in credit being double that of deposits. According to the RBI data, credit growth accelerated to 17.2% during the July-September quarter from 14.2% a quarter ago and aggregate deposits growth stood at 9.8% year-on-year in September 2022.

In the first half of this year, banks had raised over 21,000 crore via additional tier 1 bonds to finance credit growth. PNB raised 2,658 crore via AT1 bonds in two tranches while Canara Bank raised 4,000 crore and SBI raised 6,872 crore.

ABOUT THE AUTHOR

Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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