In a clear indication of the cut-throat competition between the financial institutions, Industrial Development Bank of India (IDBI) has decided to offer an annualised yield of 14.5 per cent for three years as against 14 per cent offered by Industrial Credit and Investment Corporation of India (ICICI) on its retail issue for five years.
IDBI's privately placed issue comes at a time when ICICI is ready to hit the retail bond market a week from today on March 16. Both the institutions are offering 14 per cent for regular income scheme for different maturities.
Interestingly, IDBI has also decided to reduce the minimum subscription size from Rs 1,00,000 to Rs 25,000. "The reduction in subscription size by one-fourth will see a significant shift of high networth investors from ICICI to IDBI," said a merchant banker.
While IDBI has decided to offer only one instrument in its Omnibond issue this time, ICICI is offering three instruments - regular return bond, money multiplier and tax saving scheme.
Sources from the financial institution said that IDBI has set an internal target of Rs 500 crore with a greenshoe option of another Rs 500 crore. The issue opened yesterday for subscription, and is slated to close on March 20.
The new issue, called Omni Bond Series 98- B, is offering 14 per cent which is payable semi- annually, and the annualised yield amounts to 14.49 per cent.
The instrument has a maturity of seven years with a put and call option at the end of three years and five years respectively.
Sources said that foreign institutional investors can also invest in this issue since the RBI has permitted IDBI, under Section 19 (I) D of FERA, 1973, to issue Omni Bonds to FIIs with repatriation benefits subject to certain conditions.
IDBI officials have expressed confidence that it will be able to garner the principal amount, adding, "At such attractive rates, a good response is expected from provident funds, co-operative banks and RRBs whose cost of funds is anywhere between 12 to 14 per cent per annum."
