Once bitten, PSBs stay away from bonds mart

Public sector banks (PSBs) are shying away from the corporate bond market. These banks had, as an internal policy, decided not to trade in corporate bonds as they were still to recover from the huge depreciation they suffered in their portfolios in 2005-06, dealers said.

They said PSBs were conspicuous by their absence in the ongoing issues of ICICI Bank, IDBI Bank and National Bank for Agricultural and Rural Development (Nabard), though the trend had begun a few months back.

ICICI Bank is raising Rs 500 crore with an option to retain another Rs 500 crore, IDBI Bank Rs 300 crore and Nabard Rs 250 crore.

There is absolutely no demand from PSBs even though these bonds were being offered across three to 10 year maturities, especially by Nabard. Provident funds were the only investors in the ongoing issues, the dealers said.

The banking sector had booked a depreciation loss of over Rs 2,000 crore in their corporate bond portfolio in 2005-06. The hit has been mostly in the short- and medium-term papers ranging from one to three years.

In this segment, the spread between triple-A rated corporate papers and government securities had gone up to a high of 145 basis points in March 2006 from 25-30 basis points in April 2005.

In yield terms, the yield on a 1-3 year corporate paper has gone up from 6.24 per cent to 8 per cent.

On the other hand, oil marketing companies "� Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) "� are finding no takers for the oil bonds issued to them as compensation for keeping oil prices unchanged.

Dealers pointed out that since most of the banks are paying around 7.90 per cent for raising one-year money through certificate of deposits (CDs), there is no appetite for these bonds which offer 7.07-7.25 per cent for three to 10 years.

In March, the government issued Rs 2,000 crore of 7.07 per cent three-year special bonds to oil marketing companies, Rs 2,000 crore of 7.44 per cent six-year special bonds and Rs 1,750 crore of 7.59 per cent nine-year special bonds.

IOC had received bonds worth Rs 3,449 crore, BPCL Rs 1,100 crore and HPCL Rs 1,200 crore.