MUMBAI: Banks have been slow in raising capital ahead of the start of the new fiscal as most have already raised funds earlier this year, and the spiking of yields recently has rendered the environment for selling bonds unfavourable, say merchant bankers.
Usually, March end is the time when banks flood the market with bond issuances as they ready themselves for a likely pick-up in demand for loans from consumers and industry.
A number of banks such as Bank of India, Axis Bank, Bank of Baroda were expected to sell their bonds recently, but they have so far refrained from tapping the market. However, IDBI Bank and UCO Bank did sell their bonds in the local market in the past few days, merchant bankers said.
Banks primarily raise funds for shoring up the capital in their balance sheet, something they burn up as they lend to consumers and the industry. This is mostly done by selling bonds called Tier-II issuances in industry parlance. Tier-I capital consists of selling fresh shares (equity) and perpetual bonds, which are like quasi-equity offerings.
“Most banks have already fulfiled their capital requirements by raising funds in the December-January period,” said Ajay Manglunia, head of the corporate desk at Edelweiss Securities, a debt brokerage firm. “Hardening of rates recently has also led banks to go slow on their capital-boosting activities,” he added.
Corporate bond yields have been rising, tracking spiking government bond yields. The yield on the Reuters benchmark five-year corporate bond ended at 8.55% on Monday, it has risen over 50 points since January.
“The outlook on credit demand remains dismal, especially since April to October is traditionally a period where companies do not take long-duration loans,” said Ashish Nigam, head of fixed income at Religare Asset Management. “If base rates come into effect, then demand for loans is going to take a further hit because lending rates would go up,” he added.
RBI has prescribed a minimum overall minimum capital adequacy of 9% for commercial banks with up to 50% of it in the form of Tier-II, comprising subordinated bonds and free reserves. Most banks are already capitalised well beyond this limit, bankers point out.
This allows them to defer any fund-raising activity than is aimed at boosting capital. The activity in the corporate debt market itself has been low, in line with government bonds, with traders waiting for cues from the government’s borrowing schedule for FY11.
The central bank will release a tentative borrowing calendar for the April-September period at the end of the month.
Usually, March end is the time when banks flood the market with bond issuances as they ready themselves for a likely pick-up in demand for loans from consumers and industry.
A number of banks such as Bank of India, Axis Bank, Bank of Baroda were expected to sell their bonds recently, but they have so far refrained from tapping the market. However, IDBI Bank and UCO Bank did sell their bonds in the local market in the past few days, merchant bankers said.
Banks primarily raise funds for shoring up the capital in their balance sheet, something they burn up as they lend to consumers and the industry. This is mostly done by selling bonds called Tier-II issuances in industry parlance. Tier-I capital consists of selling fresh shares (equity) and perpetual bonds, which are like quasi-equity offerings.
“Most banks have already fulfiled their capital requirements by raising funds in the December-January period,” said Ajay Manglunia, head of the corporate desk at Edelweiss Securities, a debt brokerage firm. “Hardening of rates recently has also led banks to go slow on their capital-boosting activities,” he added.
Corporate bond yields have been rising, tracking spiking government bond yields. The yield on the Reuters benchmark five-year corporate bond ended at 8.55% on Monday, it has risen over 50 points since January.
“The outlook on credit demand remains dismal, especially since April to October is traditionally a period where companies do not take long-duration loans,” said Ashish Nigam, head of fixed income at Religare Asset Management. “If base rates come into effect, then demand for loans is going to take a further hit because lending rates would go up,” he added.
RBI has prescribed a minimum overall minimum capital adequacy of 9% for commercial banks with up to 50% of it in the form of Tier-II, comprising subordinated bonds and free reserves. Most banks are already capitalised well beyond this limit, bankers point out.
This allows them to defer any fund-raising activity than is aimed at boosting capital. The activity in the corporate debt market itself has been low, in line with government bonds, with traders waiting for cues from the government’s borrowing schedule for FY11.
The central bank will release a tentative borrowing calendar for the April-September period at the end of the month.
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