HDFC Bank plans Rs 2,500-crore tier-1 bond sale amid firm credit offtake

HDFC Bank — the country’s largest private lender — is likely to soon raise funds worth around Rs 2,500 crore through the issuance of Tier-1 bonds in order to fund robust credit growth, multiple sources told Business Standard.

State-owned lender Canara Bank is also likely to tap the capital market and raise funds worth around Rs 1,000 crore through the issuance of Tier-2 bonds on August 25, the sources said. Canara Bank’s bond issuance is likely to have a green-shoe option of Rs 1,000 crore, a tenor of 10 years for the securities and a call option after 5 years, they said.

HDFC Bank’s Tier-1 bonds could be priced around 7.9-7.95 per cent, sources said. The private bank’s fund-raising plans come amid preparations by the country’s largest bank State Bank of India to sell Tier-1 bonds worth Rs 7,000 crore by the end of August, treasury officials said.

SBI’s Tier-1 bonds — the pricing of which could serve as a benchmark for other entities looking to borrow funds in the capital market — are expected to be issued at a coupon of around 7.75 per cent.

“Ahead of the SBI bond issuance, HDFC Bank is also making preparations for a Tier-1 bond issuance. The minimum they would be expecting is Rs 2,000-2,500 crore. The talks started last week — around Thursday or Friday,” a senior treasury official said. 

“If they get a decent bid, they can do it at any point of time, even before SBI. Credit growth is also happening so it is possible that even after raising Rs 2,000-2,500 crore, they could continue to issue bonds,” the source said.

In April, HDFC Bank’s board approved the issuance of additional Tier-1 bonds, Tier-2 bonds, and long-term bonds for financing infrastructure and affordable housing up to Rs 50,000 crore.

Additional Tier-I bonds pay an annual coupon — or rate of interest — to investors, but do not have a maturity date and are hence referred to as perpetual debt. The appeal of the instruments comes from the fact that they typically fetch a higher return than fixed deposits.

As on June 30, HDFC Bank’s capital adequacy ratio in accordance to Basel-III guidelines was 18.1 per cent, as against 19.1 per cent a year ago. This is a comfortable buffer over the minimum regulatory requirement CAR of 11.7 per cent. According to sources, state-owned lender Bank of Maharashtra is also looking to tap the bond market, with the lender aiming to sell Tier-1 bonds worth Rs 700 crore, including a green-shoe option, on August 26.

Last month, Punjab National Bank raised Rs 2,000 crore through the issuance of Tier-1 bonds. On Monday, Bank of Baroda’s Capital Raising Committee approved the issuance of Tier-1 bonds for Rs 2,500 crore in single or multiple tranches. The slew of bond issuances by banks comes amid strong growth in credit in the current year, even as growth in deposits lags far behind.

As on July 29, growth in bank credit clocked in at 14.5 per cent year-on-year, while that in deposits stood at 9.1 per cent, latest Reserve Bank of India (RBI) data showed.

The aggressive capital-raising plans may also have been spurred by the fact that yields on government bonds — the benchmarks for corporate bonds — have been softened over the past couple of months despite the RBI’s monetary tightening cycle.

After touching an over-three-year high of 7.62 per cent on June 16, yield on the 10-year benchmark bond has dropped sharply, with the paper settling at 7.26 per cent yield on Monday.

Since May 4, the RBI has raised the repo rate by a total of 140 basis points. The benchmark policy rate is at 5.4 per cent.