NEW DELHI, June 23: The excess liquidity in the banking system has led to an overwhelming response to the private placements currently open in the market. ``Banks armed with liquidity are pumping in money and there are very few applications from provident funds,'' says a debt market operator.

The spurt in bank investments in non-SLR debt instruments is attributed to burgeoning aggregate deposits, while credit-offtake has failed to look up.For instance, the private placement from Punjab State Industrial Development Corporation (PSIDC), which opened on June 23, has already mopped up more than 50 per cent of the issue amount.

According to one of the lead arrangers, the Rs 50-crore issue clocked close to Rs 30 crore on its first day of opening with banks pouring in money. According to sources, substantial investment is likely to come in the issue from Punjab National and Oriental Bank of Commerce.

The private placement from PSIDC offers a coupon of 14.5 per cent, payable half-yearly. The tenure of the debt instrument is five years with an upfront discount of 0.25 per cent for applications up to Rs 3 crore and 0.5 per cent for applications of Rs 3 crore and above. The put and call option can be exercised after three years.

Another issue that has received an encouraging response is the Rs 300-crore issue from Rajasthan State Electricity Board. Though the bond issue was downgraded from AA(SO) to A+(SO), it has managed to mobilise close to Rs 150 crore within a week of its opening. The state electricity board has been incurring losses for the past five years.

Banks again have invested heavily in the issue with Punjab National Bank and Canara Bank leading the pack. ``Though downgraded, the issue is attracting investment because the regular return bonds are backed by the Rajasthan government. Under a structured mechanism, funds will flow into an escrow account where any shortfall would be covered by the Rajasthan government, '' says one of the lead arrangers.

The issue, with a tenure of seven years, has a minimum application of Rs 50,000 with a coupon rate of 15.1 per cent, payable half-yearly with no upfront discount. The yield to maturity works out to 15.67 per cent with no put and call option. The bonds will be redeemed in five equal parts after the fifth year.

The Rs 50-crore debt issue from Anagarma Finance, which also opened yesterday, saw one single application of Rs 5 crore from a nationalised bank. The issue, with a tenure of three years, offers an attractive coupon of 16 per cent with an yield to maturity of 16.64 per cent. The issue has a rating of AA -.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.