JP Morgan EM index addition: Banks, FIs look to raise Rs 18,000 crore

Days after JP Morgan announced the inclusion of government bonds in its emerging market (EM) bond index, a host of banks and other financial institutions (FIs) are set to tap the debt market on Monday and Tuesday. They plan to raise Rs 18,000 crore by issuing non-convertible debentures (NCDs) and bonds.

National Bank for Agriculture and Rural Development (Nabard) plans to raise up to Rs 3,000 crore via five-year social impact bonds on Tuesday, the first of its kind in India.  

Market participants anticipate strong investor demand for Nabard’s social sector bond. This is primarily due to the tenure, which is expected to resonate with mutual fund houses as well as long-term investors, including insurance companies and pension fund houses.

“There is some buoyancy in the market in the last couple of days or weeks. The market was unstable and yields were moving up. Investors were uncertain whether the rates were going up or down. So, they were holding on. But now, with this global index inclusion, everybody who was waiting for a good appetite has started coming to the market,” said Ajay Malglunia, managing director (MD) and head investment grade group at JM Financial.

“Banks are seeing good credit off-take across sectors, including infrastructure. And, infra bonds make a lot of sense for the banks to raise money because they don’t have application of statutory liquidity ratio (SLR) requirement. It is cheaper money compared to the short-term rates. It is a 7.49 per cent kind of a level for State Bank of India (SBI) infra bonds. Everybody is following the leader, especially when they see SBI is able to raise so much money so quickly,” he added.

On Monday, REC is inviting bids for its perpetual bonds, with a target to raise up to Rs 2,000 crore through the issue.

Lenders who were previously awaiting SBI’s cut-off are ready to tap the market during the week.

Punjab National Bank plans to raise up to Rs 3,000 crore via perpetual bonds on Tuesday, whereas Canara Bank plans to raise up to Rs 5,000 crore via 10-year infra bonds.

Kotak Mahindra Investments plans to raise up to Rs 540 crore via three-year and two-year bonds, with coupon rates of 8.0359 per cent and 8.0415 per cent, respectively.

On Friday, SBI successfully issued its second tranche of infrastructure bonds. It raised Rs 1,000 crore through 15-year bonds at a coupon of 7.49 per cent, which was better than what the market had expected.

“The corporate bond market is buoyant after the announcement of JP Morgan’s bond index inclusion. With increasing credit growth and negative liquidity in the banking system, the corporate entities are desperate to raise funds from the bond market. Investor appetite, too, has increased since then, specifically in longer tenor instruments with highest credit rating. Corporate bond issuers were rushing to tap the bond market to make use of increasing investor demand post announcement of the index inclusion. And, the Reserve Bank of India (RBI) is allowing banks to keep corporate bonds in HTM category,” said Venkatakrishnan Srinivasan, bond market veteran, founder and managing partner of Rockfort Fincap LLP.

JP Morgan had announced the inclusion of India in its widely followed emerging market bond index on Friday.

JP Morgan has included India in its flagship index GBI-EM Global Diversified index.

India will join the index with 1 per cent weight in June 2024. The weight will increase by 1 per cent each month until 10 per cent in April 2025.