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Indian banks flood debt market with tier-II issues

BOMBAY: Indian state-run banks have swamped the debt market with tier II bond issues and are likely to mop up nearly 14 billion rupees ($321.2 million) in the last week of March in a bid to shore up their capital adequacy ratios, money market brokers said on Thursday.

India's largest state-run bank, The State Bank of India (SBI), heads a pack of banks which are either planning such issues or already in the market.

Banks in India are required to maintain a capital adequacy ratio of nine percent of risk-weighted assets at the end of March 2000. Subordinated debt or tier-II bonds are issued to meet such capital adequacy requirements.

Money market dealers said the issues are unlikely to affect liquidity since the funds will move from one bank to another.

The coupon on SBI's proposed 63-month, 10 billion rupees bond issue will be finalised soon, taking into account market conditions, and it is likely to hit the market on March 23, traders said.

Central Bank of India's 63-month bond issue at 11.35 percent worth two billion rupees, including a green-shoe option of 500 million rupees, may open on March 21, while Syndicate Bank has already entered the market this week to raise 750 million rupees through a subordinated debt issue.

Syndicate Bank's 87-month issue includes a greenshoe option of 250 million rupees and carries a coupon of 11.50 percent. The State Bank of Travancore and State Bank of Mysore (SBM) already have open tier-II issues in the debt market.

State Bank of Travancore's one billion rupees issue will close on March 18, while SBM's 700 million rupees issue opened on March 14. Both banks are issuing 63-month bonds at 11.35 percent.

Traders said SBI is approaching the market at a time when liquidity is expected to tighten.

Traders anticipate next week's outflows of around 70 billion rupees towards advance tax payments and sale of state loans for 19.2 billion rupees by the Reserve Bank of India on March 22 will hit liquidity.

Secondary market yields on corporate debt have risen in the first half of March, after the budget for 2000/2001 (April-March) was presented, as a widely expected reduction in interest rates did not follow.

The government lowered interest rates on some of its small savings schemes in January and in its budget.

Indian Oil Corporation's (IOC) five-year bonds issued in the second week of February at a coupon rate of 10.85 percent were trading at a yield of 11.30 percent in the secondary market, dealers said.-Reuters