Public sector lender Bank of Maharashtra plans to raise up to Rs 1,000 crore through long-term infrastructure bonds to manage asset liability mismatches and reduce incremental cost of funds.
Sushil Muhnot, chairman and managing director, told Business Standard that on an incremental basis, costs savings could be in the range of 66 basis points. This could enable the bank to lend at competitive rates and also earn better returns.
The exemption from priority sector lending obligations is an additional benefit, he said.
The Pune-based commercial bank will go in for rating of instruments shortly and might raise money over the coming months in the current financial year.
The total infrastructure and affordable housing finance loan portfolio was at Rs 15,500 crore at the end of March 2014. The exposure to infrastructure is pegged at Rs 13,000 crore and affordable home loan book was Rs 2,500 crore.
Hyderabad-based public sector lender Andhra Bank and private sector lender Kotak Mahindra Bank have already gone for rating of long-term infrastructure bonds. While Andha Bank has received rating for amounts up to Rs 1,000 crore, for Kotak Mahindra Bank it is for amounts up to Rs 300 crore for infra bonds.
“Given the exemption from statutory reserve requirements and priority-sector obligations, these bonds will be cost-effective for the issuing bank. The benefit would be around 75 basis points compared with longer-maturity deposits. The bonds will also help banks improve their asset-liability profile,” said rating agency CRISIL.
Apart from statutory liquidity ratio and cash reserve ratio exemptions, advances against these bonds are also exempt from priority-sector lending obligations.
Around a fifth of outstanding banking sector credit as on March 31, 2014, was to infrastructure and affordable housing segments. At least Rs 3,00,000 crore of loans to these sectors – both current and prospective — would qualify for funding through infrastructure bonds in the current financial year, according to CRISIL.
Given the magnitude of eligible loans for funding, the issuances of infrastructure bonds will pick up over time. Another spinoff of from issuance of these bonds will be deepening and developing the Indian bond market.