Friday, May 24, 2024
HomeBusinessBond Issuances By Banks Touch All-Time High During April-September 2022 Amid Tight...

Bond Issuances By Banks Touch All-Time High During April-September 2022 Amid Tight Liquidity: ICRA

[ad_1]

Edited By: Mohammad Haris

Last Updated: January 09, 2023, 14:43 IST

Banks have been relying on various sources of funding such as refinance from All India Financial Institutions, drawdown of excess on-balance sheet liquidity, and debt capital market issuances.

Banks have been relying on various sources of funding such as refinance from All India Financial Institutions, drawdown of excess on-balance sheet liquidity, and debt capital market issuances.

Incremental credit expansion stood at Rs. 12.7 lakh crore in FY2023 till December 16, while deposit accretion continued to trail at Rs. 8.9 lakh crore

Gross bond issuances by banks in India surged to Rs. 0.9 lakh crore in the first nine months of FY2023, compared with Rs 0.7 lakh crore in FY2022, surpassing the previous high of Rs 0.8 lakh crore in FY2017, according to a report by rating agency ICRA.

“As credit demand picked up strongly in recent months, the overall gap between deposits and credit growth widened substantially. Incremental credit expansion stood at Rs. 12.7 trillion in FY2023 (till December 16, 2022), while deposit accretion continued to trail at Rs. 8.9 trillion,” ICRA said in the report.

It added that to bridge this gap, banks have been relying on various sources of funding such as refinance from All India Financial Institutions (AIFIs), drawdown of excess on-balance sheet liquidity, and debt capital market issuances.

Aashay Choksey, vice-president and sector head (financial sector ratings) at ICRA, said, “We expect the credit-to-deposit ratio for the banking system to firm up to 76.3-76.5 per cent by March 2023 from 74.8 per cent (as on December 16, 2022) and stand considerably higher than the low of 69.6 per cent seen during the Covid-19 pandemic. Accordingly, we expect the overall gross bond issuances by banks to rise further to Rs. 1.3-1.4 trillion in FY2023.”

The report said that besides helping shore up lendable resources, debt capital instruments (Tier-I and Tier-II bonds) qualify for inclusion in capital ratios. Banks also issue long-term infrastructure bonds to fund certain specified eligible assets.

“These debt instruments also boost the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR), given the longer tenor of these instruments. Given the risks associated with debt capital instruments, these are relatively higher priced than infrastructure bonds. Hence, the choice of instrument is also driven by the availability of eligible assets for infrastructure bonds or the benefits that a bank can derive in its capital/liquidity ratios by issuing capital instruments even if the same is at a marginally higher cost,” according to the report.

ICRA’s analysis shows that while both public and private banks issued infrastructure bonds, public banks had a higher preference for Tier-I bonds while private banks issued more volumes of Tier-II bonds.

Within overall bond issuances of Rs 91,500 crore in 9M FY2023, Tier-II issuance reached an all-time high of Rs 47,200 crore, albeit on the back of large issuances by two large private sector banks. “We expect infrastructure bond issuances to reach an all-time high in FY2023,” ICRA said.

Choksey also said that as large private banks are well placed on core capital, their share of Tier-I bonds in aggregate issuances was lower compared to public sector banks.

“In the past, public banks have relied more on Tier-I bonds to meet the rising regulatory requirements, while the recent issuances have been driven by stronger credit growth. Moreover, in the past, tight liquidity conditions had led to higher Tier-II and infrastructure bond issuances by private sector banks, which, in our view, will continue in the near term,” he added.

Read all the Latest Business News here

[ad_2]

Source link

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments