ICRA Predicts Banks Will Raise More Than Rs1.4 Lakh Crore Through Bond Issuances in Fy23

ICRA Predicts Banks Will Raise More Than Rs1.4 Lakh Crore Through Bond Issuances in Fy23

Conditions like strong credit growth and tight liquidity are driving bank bond issuance to an all time high. 

During the nine months of fiscal year 2023, the gross issuance of bonds by Indian banks reached Rs 90,000 crore, surpassing the previous high of Rs 70,000 crore set in the last financial year of 2022. 

ICRA, the domestic rating agency, has estimated that the ratio of credit to deposit (CD) for the banking system is anticipated to continue firming up, gross bond issuance is overall anticipated to generate an all time high of Rupees 1.3 to 1.4 lakh crore by the end of the present financial year. 

ICRA Vice President Aashay Choksey said that  in order to bridge the gap between deposit and credit, Indian banks have been depending on several sources of funding such as drawdown of excess on balance sheet liquidity, debt capital, market issuances and  refinance from All Indian Financial Institutions. 

The Vice President also added that by March 2023 they anticipate the credit to deposit ratio for the banking system to firm up to 76.3 to 76.5% from 74.8% as on December 16, 2022, and stand greatly higher than the low of 69.6% as seen during the Covid 19 pandemic. 

As the demand for credit elevated during the latest months, the gap between deposits and credit growth overall broadened considerably.

The expansion of incremental credit stood at rupees 12.7 lakh crore in the present financial year till December 16, 2022. The deposit accretion for the same period was Rs. 8.9 lakh crore. 

Bonds that qualify for inclusion in capital ratios, such as Tier-I and Tier-II, help shore up lendable resources. To fund certain specified eligible assets, the banks also issue long term infrastructure bonds in order to finance specific eligible assets.

Given the longer tenor of these instruments, these instruments of debt also improve the net stable funding ratio ( NSFR) and liquidity coverage ratio (LCR). 

The bond issuance of almost 60% in the month of December were towards term lending and additional bank financing requirements. 

According to Rajani Sinha, chief economist at CARE Ratings, "banking system liquidity stood in deficit by end-2022 on solid loan off-take advance tax payments and likely RBI intervention." "Corporate bond issuances rose in December, with 60% of the total cash raise coming from the "Banking/term lending" group.

Due to increased credit demand, declining liquidity, and quarter-end funding requirements, CD issuances also increased in Q3 FY23. 

On the back of large issuance by two large private sector banks, analysis of ICRA’s also displays that within overall bond issuances Tier II reached an all time high of Rupees 47,200 crore.

While recent issuances have been fueled by stronger loan growth, public banks have historically depended more on Tier-I bonds to meet increasing regulatory requirements, according to ICRA's Choksey.

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