Return
to Story Page
To print: Select File and then Print from your
browser's menu
Anirban Nag
Mumbai, Jan 7: The Federal Bank is all set to enter the debt market to raise Rs 150 crore at 14.40 per cent to shore up its capital adequacy ratio. The Kochi-based private sector bank is raising money through a 63-month issue, being lead-managed by ICICI Securities.
The issue--the first from a private sector bank to be floated this fiscal--is slated to open early next week. At least four banks--Canara Bank, Punjab National Bank, Indian Overseas Bank and Vijaya Bank--have entered the debt market between December and now to garner around Rs 1,200 crore to shore up their capital adequacy ratios (CAR). Canara Bank tapped the market with two papers of different maturities. The 63-month paper offered a coupon of 13.85 per cent while the 87-month paper was priced at 14.20 per cent.
Vijaya Bank kicked off the subordinated debt issues by public sector banks on December 28 with a 14.20 per cent. The bank raised Rs 120 crore through a 63-month paper.
PNB entered the market with a 75-month paper, offering a couponof 13.75 per cent. The bank offered various incentives which will take the yield of the paper to 13.89 per cent.
The Federal Bank issue is priced well above the coupon of all the public sector banks. The issue is not rated, but sources said that the issue will sail through as banks have been lapping up the subordinated debt issues. "Banks will never face a problem as one bank will always help the debt issue being issued by another bank," a source said. Federal Bank will be followed by Central Bank which proposes to raise Rs 300 crore in a few weeks. All these banks will have to tap the debt market to meet their CAR for the financial year.
Earlier, the Reserve Bank capped the maximum coupon of banks' subordinated paper at 200 basis points over the coupon of a comparable maturity of the government of India paper.
This effectively means that a bank seeking to raise a seven-year debt paper to increase its tier-II capital, the maximum coupon rate that it can offer is between 14-14.05 per cent. The primarycoupon rate for the five-year government paper is pegged at 11.78 per cent and the six-year paper at 11.98 per cent. No seven-year paper was issued in the current fiscal.
"The Federal Bank issue has been priced at above a spread of 200 basis points since it found the cap very tight," a merchant banking source said. RBI officials had earlier clarified that they are willing to relax the cap on a case-to-case basis. The need to shore up tier-II capital follows the RBI decision to hike banks' capital adequacy ratio (CAR) in stages--from eight per cent to nine per cent by March 1999 and eventually to 10 per cent by March 2000.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------