State Bank of India (SBI) has raised Rs 10,000 crore through its sixth infrastructure bond issuance with a 15-year tenure at a 7.36% coupon rate, the bank said in a statement on Wednesday, (10 July, 2024).
With this latest issuance, SBI’s total outstanding long-term bonds have reached Rs 59,718 crore. The bond issue was highly successful, attracting bids totaling Rs 18,145 crore, oversubscribing the base issue size of Rs 5,000 crore by about 3.6 times.
There were about 120 participants, including firms, insurance companies, mutual funds, pension funds, and provident funds.
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The funds raised through these infrastructure bonds are particularly beneficial for banks as they are exempt from regulatory reserve requirements like the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).
Unlike deposits, which require banks to maintain 4.5% of the amount as CRR with the Reserve Bank of India (RBI) and invest approximately 18% in securities to meet SLR obligations, infrastructure bond proceeds can be fully utilized for lending activities.
According to a report by The Economic Times, several other state-owned lenders such as Canara Bank and Bank of India are also planning to raise funds through infrastructure bonds.
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The report further quoted market sources as saying that Canara Bank and Bank of India are planning to issue bonds around July 18-19. Also, Bank of India aims to issue infrastructure bonds with a tenure of 10 years, targeting a fund-raising amount of up to Rs 5,000 crore next week.
Choosing infrastructure bonds for fundraising allows banks to effectively manage their interest costs because the funds raised through these bonds are exempt from maintaining Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements.
Infrastructure bonds typically have a minimum maturity of seven years. They are issued by banks to raise funds specifically for long-term infrastructure projects.
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Currently, banks are under significant pressure to mobilize funds due to slower deposit growth compared to credit growth. The banking system’s net interest margins have decreased over the past year, prompting lenders to increase deposit rates to attract funds.
In this context, infrastructure bonds play a crucial role in helping banks optimize their interest rate margins. The exemptions from reserve requirements associated with these bonds effectively reduce the cost of funds for banks.
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