Report: In FY23, bank bond issuance will reach a record high of Rs 1.3 trillion.
Gross bond issuances by Indian banks raised more than Rs 91,000 crore in April-December 2022, more than the previous high of Rs 80,000 crore in financial year 2016-17 (FY17), according to ICRA.
With tight liquidity conditions likely persisting in the near to medium term, banks may raise around Rs 1.3 trillion to Rs 1.4 trillion through bond issuances in FY23. Banks raised more than Rs 73,000 crore raised in FY22, said the rating agency.
Incremental issuances in Q4 FY2023 are expected at Rs 40,000-50,000 crore. State Bank of India, the country’s largest lender, alone has approved raising Rs 20,000 crore of infrastructure and Tier-I bonds, said ICRA.
Public sector banks usually issue bonds for capital considerations and private ones to meet credit-deposit growth mismatch.
Public sector banks largely issue tier I bonds, private lenders preferred Tier II bonds (as Tier I is costlier than Tier II) and both issued infrastructure bonds.
Within overall bond issuances of Rs 91,500 crore in nine months of FY23, Tier-II issuance reached an all-time high of Rs 47,200 crore. ICRA expected infrastructure bond issuances to reach all-time high in FY23.
It said amidst tight liquidity, banks have also relied upon other sources like refinance from All India Financial Institutions (AIFIs), drawdown of excess on-balance sheet liquidity as well, to bridge the gap between deposits and credit growth.
The incremental credit expansion during FY2023 stood at Rs. 12.7 trillion (till December 16, 2022), while deposit accretion continued to trail at Rs 8.9 trillion.
The gap between credit and deposits, after factoring Cash Reserve Ratio and Statutory Liquidity Ratio (SLR) requirements, widened to Rs 5.7 trillion (as on December 16, 2022).
The credit-to-deposit (C\D) ratio for the banking system is expected to continue firm up. The C\D ratio for the banking system rises to 74.8 per cent (as on December 16, 2022), considerably higher than lows of 69.6 per cent seen during the pandemic.