Bank Of Baroda May Tap Market With 10-Year Infrastructure Bond By Next Week

Bank of Baroda plans to raise up to Rs 5,000 crore through a 10-year infrastructure bond issue and may tap the primary bond market next week, sources in the know told NDTV Profit.

The issue is likely to have a base size of Rs 2,000 crore and a green shoe option of Rs 3,000 crore.

According to the merchant bankers, the bidding date for this bond issue is likely to be Aug. 26. The bonds are rated AAA by Crisil Ratings.

The last time Bank of Baroda tapped the bond market was in January, when it raised Rs 5,000 crore through a 10-year infrastructure bond issue at a coupon rate of 7.57%. The issue was fully subscribed.

The move follows several banks tapping the market to raise funds through infrastructure bonds to support their rapidly growing balance sheets, at a time when the government is thrust into developing infrastructure.

Banks and financial institutions raise funds through infrastructure bonds to finance their long-term infrastructure projects. These bonds have a minimum maturity of seven years.

Banks opt for this particular instrument because it is cheaper and because they are eligible for some regulatory exemptions.

As an incentive for banks, the Reserve Bank of India has exempted borrowing through infrastructure bonds from the mandatory statutory liquidity ratio and cash reserve ratio requirements.

In all, the end use of infrastructure bond issuance is specifically for investing in the infrastructure sector or the affordable housing sector.