Banks to log in bonds for loans, safety first!

MUMBAI: Top banks including Axis, HDFC, SBI and are rather willing to compromise on yields for safety and liquidity as they lap up tradeable bonds for loans. Banks’ credit is yet to show any sign of expanding with a looming corona infection threat.

Banks have likely bought into bonds of Tata Motors, Trent West Side, HDFC Ltd, Chennai Petroleum, Rural Electrification Corp (REC), Power Finance Corp (PFC), and Indian Hotels in recent months among others as loan demand is slowing.

“Banks see opportunity in expanding business through investments with the industry growing little,” said Ajay Manglunia, managing director – debt capital market at JM Financial. “They are seen subscribing a sizable share in every branded issue, which offers safety first over any higher yield.”

Tradition investors including fund houses are going slow amid limited fund inflows,” he said.

Axis Bank and HDFC Bank are seen ahead of others in subscribing to those papers. is said to be ramping up bond investments with it likely lapping up a fair share of Chennai Petroleum bonds, dealers said. The triple-A rated government-owned company offered 5.44 percent for three years in June last week.

More than a month ago, the country’s largest mortgage lender HDFC Ltd sold bonds for Rs 7,000 crore offering 6 percent with a five-year maturity. Axis is believed to have subscribed to a chunk of the issue.

Individual banks did not respond to ET’s query. Axis Bank declined to comment.

“As per recent indications, RBI may not raise rates in near future to support the recovery,” said Debendra Dash, senior vice president at AU Small Finance Bank. “Creditworthy corporates are raising via bonds, which are cheaper than loans. This makes sense for banks investing into those as they yield at least higher than sovereign securities.”

“Any top-rated papers could be a good alternative to large-scale loan expansion, hardly seen now,” he said.

Banks rushed to grab bonds sold by , a top-rated sovereign-backed entity raising about Rs 3,200 crore long-term papers about two weeks ago. Bonds with 6-15-year maturities offered 6.35-7.11 percent.

Coastal Gujrat Power, a wholly-owned subsidiary of Tata Power caught a good amount of attention when it raised Rs 570 crore offering 5.70 per cent with a three-year maturity. It is rated as AA with Credit Enhancement.

Such bond sales have taken place between April-end and June-end. The pace of issue bonds contracted in July with some working days not reporting a single primary market transaction.

Banks grew loans at 6.1 per cent year on year for the fortnight ended 3 July even as deposit growth declined, show latest data from the Reserve bank of India. The loan gauge expanded 5.8 percent in June amid sluggish business activities. In normal times, the pace of loan growth is higher than such levels.