Industrial Development Bank of India (IDBI) yesterday entered the private placement market to raise Rs 1000 crore, and would offer a coupon of 14 per cent for a period of seven years.
"This is clear indication of rate war between the top institutions as ICICI is also in the retail market offering 14 per cent for seven years," sources said.
Although rates offered by the two institution are the same, IDBI is offering attractive upfront incentives to encourage investments. IDBI has decided to offer incentive in two slabs- for investment above Rs 5 crore and another for investment below Rs 5 crore. In case of investment above Rs 5 crore, IDBI is offering 15 paise for one year bonds, 25 paise for three years, 35 paise for five years and 50 paise for seven year bond per Rs 100 subscribed.
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IDBI is offering 11 per cent for bonds having tenure of one year as against 12.50 per cent offered in its last issue (in July) . It may be recalled that in the last private placement, IDBI managed to raise Rs 2000 crore which included massive response for the one year paper.
"Although the interest rate for short term paper has hardened following the hike in CRR and repo rate to 11 and 8 per cent respectively, IDBI has decided to offer lower coupon for short term since it does not require large quantum of short term funds," sources said. The financial institution has also reduced rates for its short term paper from 13.25 per cent (offered in last private placement) to 13 per cent. However, IDBI has not changed the coupon it offered for five and seven years which stands at 13.75 per cent and 14 per cent respectively. Meanwhile, IDBI is expected to hit the retail market to raise Rs 750 crore with a greenshoe option of Rs 750 crore in the third week of September.