ICICI Bank can raise Rs 10 billion in infrastructure bonds to finance affordable housing and projects.
These long-term bonds have the advantage of being exempt from the Cash Reserve Ratio (CRR) and the Regulatory Liquidity Ratio (SLR).
It will help alleviate asset liability management (ALM) challenges in lending for critical infrastructure projects and industrial sectors. Depending on the sources of the bond market, the bonds may be issued in one or more tranches depending on demand and market conditions.
Rating agency ICRA assigned a ‘AAA’ rating to ICICI Bank’s infrastructure bond offering.
At the end of June 2022, ICICI Bank’s long-term infrastructure bond holding stood at Rs. 38,809 crores. This is up from Rs 22,139 crore a year ago, the bank said in its 1Q23 investor statement.
In August 2022, the Bank of Baroda raised Rs 1,000 crore worth of bonds with a coupon of 7.39%. Rs 5000 crore has been allowed to be raised through these bonds.
Long-term infra bonds must have a minimum maturity of seven years. Banks should support these infrastructure projects before raising funds through bonds.
The Reserve Bank of India (RBI) allows net bank credit write-off for capital raised through long-term bonds to finance infrastructure and affordable housing, subject to certain restrictions. Investment and borrowing in infrastructure sectors such as highways, ports, and energy also rose as capital spending supported economic growth.
By July 2022, bank loans to the infrastructure sector will grow by 11.1% p.a. to Rs. 12.14 billion.
However, bank lending to the infrastructure sector was flat last year and is expected to grow 0.3% by July 2021, RBI said.
Nearly half of infrastructure loans go to the power sector (Rs 6,270 crore), followed by the road sector (Rs 1,000 crore). 2.79).
Banks, especially private lenders, are reluctant to provide new project loans due to the heavy capital burden of the infrastructure sector.
Rs 8 billion from ICICI Bank through bonds for transport and energy projects
Private sector lender ICICI Bank plans to raise Rs 8,000 crore in infrastructure bonds to finance projects in sectors such as transport, energy, and affordable housing.
The private lender is raising Rs 8,000 crore in this round, while rating agency Crisil has rated the Rs 10,000 crore bond AAA/stable, debt market sources said. Borrowers always have the option of raising funds in installments.
The issue size is Rs 500 crore and the green shoe is Rs 7,500 crore. This will be a 10-year document. Interest rates are uncertain due to market volatility. Long-rated commercial paper (10-year maturity) has coupons ranging from 7.25% to 30%, according to bond dealers.
ICICI Bank did not respond to emailed inquiries about raising capital through infrastructure bonds. Its impact on roads, ports, communications, urban development, and other infrastructure was Rs 48,981 crore at the end of March 2021, according to the FY21 annual report.
Funds raised in this way are exempt from statutory and regulatory liquidity ratio (SLR) requirements and are invested in long-term infrastructure and hard-money mortgage loans.
The crisis budget report shows that the bank is actively financing projects to build capacity and accelerate progress in clean sectors such as renewable energy and sustainable sectors such as waste management.
In addition, as part of the overall loan evaluation process, the bank assesses the environmental impact of the proposed project and assesses its social risk.
Credit ratings continue to reflect the bank’s strong capitalization, strong market position, and attractive reserves. These advantages are partially offset by the relative quality of the assets.
However, Crisil said it has a high level of capital with this capability.
ICICI Bank raises Rs 1 lakh to support CRR and SLR
ICICI Bank can raise Rs 1 lakh through real estate loans to support projects and affordable housing.
The advantage of these long-term bonds is that they do not have to meet the statutory liquidity and cash reserve ratio (CRR) (SLR) requirements.
This way, you can avoid the Asset Liability Management (ALM) issues you face when getting a project loan for your buildings and fixed assets. These bonds may be issued in one or more tranches depending on market needs and conditions, depending on the sources of the bond market…
Credit rating agency ICRA has given ICICI Bank a real estate bond rating and assigned it a AAA rating.
In August, the Bank of Baroda held Rs 100 billion of these bonds at 7.39%. These tickets can be sold for up to 5,000 kroner.
The repayment term of long-term real estate loans is about seven years. Banks must first finance these infrastructure projects before they can finance the bonds.
The Reserve Bank of India (RBI) allows money raised through long-term bonds to finance real estate and affordable housing to be deducted from the refinance loan. Increased investment to support economic growth has led to increased investment and borrowing in infrastructure sectors such as roads, ports, and power.
READ ALSO | ICICI Bank opens up all digital ecosystems for SMEs
In July 2022, bank lending to the real estate sector increased by 11.1% compared to the same period last year and amounted to 12.14 trillion rupiahs.
Bank lending to the real estate sector remained flat in 2018 and increased by just 0.3% in July 2021, according to RBI data. The power sector accounted for Rs 627 crore in the debt sector, followed by the road sector (Rs 279 crore).
Infrastructure was used to raise Rs 3,595 crore by ICICI Bank.
MUMBAI: ICICI Bank, India’s largest private sector lender, raised Rs 3,595 crore in infrastructure for the second time this fiscal, which could indicate a pick-up in demand in the sector.
It is noted that the document was specifically signed by the KSZh Pension Fund, the SBI Pension Fund, and the SBI Insurance Company. The bonds are offering 6.67% with a seven-year maturity, market sources told ET. The estimated interest rate is within the expected range.
ICICI Bank did not comment on the matter in a brief statement. Contact with private investors immediately failed.
Rating agency ICRA rated the document as “Three Fives” (Outlook “Stable”).
“This strong fundamental position can insulate against any future asset quality issues and also support future asset growth,” Ikra said in the letter.