The Hindu Business Line : Slowdown in Tier II bond issuances

Mumbai, Aug 7 The high interest rate scenario has led to a slowdown in Tier II bond issuances by banks. Although the need for capital still exists, banks are putting off raising capital for the time being, due to high yields. Issuances could pick up, again, by the fourth quarter, when there could be an easing of rates, said bankers and analysts.

Corporation Bank, for instance, has put on the back burner its plans to raise lower Tier II bonds worth Rs 200 crore. A senior official from the bank said that the bank is not planning to come out with the issue at current yield levels and will wait for yields to come down. The bank will wait till the December for issuing the bonds, he added.

“Right now we are not so hard pressed for capital that we have to raise funds at 12 per cent, which is the current level of bond yields. We are looking to raise funds for our growth. Even with the additional capital requirements for Basel II we are comfortable. We can afford to wait for the yields to come down,” he said.

Unlike last year, this year there have been hardly any Tier II bond issuances by banks, said Mr Rajesh Mokashi, Executive Director, CARE Ratings.

“These are long bonds and banks don’t want to lock in at 13-16 per cent. So, most players would prefer to take short- term funds to tide over a period of three months. Therefore, in the last quarter there could be huge scramble in the bond market,” he said.

Though there could be a slowdown in credit demand, the need for banks to raise capital still exists, as the underlying growth in the economy is at 8 per cent, Mr Mokashi pointed out.

Mr Ananda Bhoumik, Senior Director, Fitch Ratings, India, said that the slowdown in bond issuances had more to do with interest rate and pricing, because Basel II would actually absorb more capital and banks would need to raise more capital.

More Stories on : Govt Bonds

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rupee flat in volatile trade

Bill soon to enable public insurers to raise capital

Bharti AXA General kicks off operations

More banks hike lending rates

Slowdown in Tier II bond issuances

Bond prices fall by 50 paise

Call rates tad lower

SBI associate bank officers’ strike