That the entire Rs 500-crore bond float was subscribed to in the span of a single working day did not surprise the bank's officials who were expecting an unusually early closure to the issue.

A quick subscription mainly by provident funds, mutual funds, banks and financial institutions has led to the bank's capital adequacy ratio shooting up from 9.54 per cent as on September 30, 1998, to 11 per cent at present.

Officials claim that the bank is offering similar rates to other bond issues in the market but for longer periods. The bond issue was split into two maturity periods with 63-month instruments offering a coupon rate of 13.85 per cent annualised and the 87-month instrument at a coupon rate of 14.20 per cent.

Several other banks have opted for privately placed bond issues to augment their tier-IIcapital over the past few months. Punjab National Bank offered a 75-month instrument at an annualised coupon rate of 13.95 per cent. Indian Overseas Bank offered a 60-month instrument at a half yearly coupon rate of 13.75 per cent which amounts to an annualised rate of 14.21 per cent. Vijaya Bank, which offered a bond issue last month, was offering a 63-month instrument at an annualised rate of 14.20 per cent.

Consequently, Canara Bank has offered bonds at competitive rates for a seven-year period compared with other banks that have offered bonds for a maximum period of five years. Only PNB is offering bonds for a longer duration but with lower interest rates compared with Canara Bank.

The entire Rs 500 crore raised through the bond issue will beef up the bank's tier-II capital. Canara Bank is in the process of mopping up Rs 700 crore by March 2000 to help raise its capital adequacy ratio. The bank will raise Rs 200 crore from internal accruals, with the rest being raised through the bondissue.