Amid tight liquidity conditions, banks issued bonds in record amounts, with gross issuances reaching an all-time high of Rs 91,500 crore so far this fiscal, and likely to end the financial year with around Rs 1.4 lakh crore Is.
Gross bond issuance by banks is estimated to reach Rs 1.3-1. Loan sales of Rs 4 lakh crore have already reached a record high of Rs 0.915 lakh crore this fiscal, surpassing the previous high of Rs 0.8 lakh crore in FY17, Icra Ratings said in a note on Monday. has crossed
The agency said this alternative source of raising funds by banks is behind the widening credit-deposit gap. With credit demand continuing to exceed deposits throughout this financial year, the overall gap between deposit and credit growth has widened substantially.
Incremental credit expansion stood at Rs 12.7 lakh crore, while deposit accretion remained at Rs 8.9 lakh crore till December 16, 2022.
To bridge this gap, banks have been relying on various sources of funding such as refinancing from financial institutions, drawing on excess liquidity on the balance sheet and debt capital market issuance.
As a result, gross bond issuance by banks increased to Rs 0.9 lakh crore in the first nine months of FY2023, from Rs 0.7 lakh crore in FY22, and the previous high of Rs 0.8 lakh crore in FY17 Akshay Choksi, Vice President & Sector Head, Financial Sector Ratings, ICRA said.
They expect the system-wide credit-to-deposit ratio to rise to 76.3-76.5 per cent by March from 74.8 per cent as of December 16, 2022, and will be much higher than the low of 69.6 per cent seen during the pandemic.
Accordingly, the total gross bond issuance by banks may increase to Rs 1.3-1.4 trillion in FY2023.
Tier I and II bonds qualify for inclusion in capital ratios in addition to raising growth capital for lenders and boosting their liquidity coverage ratio and net stable funding ratio. Banks also issue long-term infrastructure bonds to finance certain specified eligible assets. Both public and private banks issued infrastructure bonds, with public banks having a higher preference for Tier-I bonds while private banks issued more Tier-II bonds.
Tier-II issuance reached an all-time high of Rs 47,200 crore, with bond issuance totaling Rs 91,500 crore in the first three quarters of FY23.