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Following the Reserve Bank of India (RBI)'s incentive to raise long-term funds, private sector banks are chalking out plans to issue infrastructure bonds in the coming months. On Wednesday, YES Bank's board approved raising Rs 3,000 crore through long-term bonds. Even Axis Bank had announced similar plans on Tuesday.
"In accordance with the recent RBI guidelines on issue of long-term bonds by banks - financing of infrastructure and affordable housing - the board of YES Bank has approved raising Rs 3,000 crore of long-term bonds, and the bank now intends to seek shareholder approval for the same," said Rajat Monga, group president- financial markets and chief financial officer, YES Bank.
According to Monga, the amount will be raised in the next 12 months. "These bonds are expected to provide cheaper long-term funding to the bank and will enable the bank to significantly accelerate its affordable housing loan business, and consequently, the overall retail asset strategy. This will also assist in lowering of funding costs for infrastructure project financing," Monga said.
RBI has announced that long-term bonds (tenor of more than seven years) will be exempt from cash and statutory reserve requirements, if the proceeds were used to fund new long-term infrastructure projects and affordable housing. Also, the loans funded via this process will be exempt from the computation of adjusted net bank credit for the purpose of calculating priority sector lending requirements.
"Infra bonds will cost higher than deposits because they are of longer duration. But there is a benefit because reserves being zero and priority sector maintenance being waived," said Monga.
On Tuesday, Axis Bank too said it is planning to float infrastructure bonds. "We will look at the option of infrastructure bonds issuances as they look attractive," Somnath Sengupta, executive director & head-Corporate Centre, Axis Bank, said.
