Bond issuances by banks may fall below Rs 90,000 crore in FY24 due to easing liquidity conditions, rating agency ICRA has said in a report.
Banks issued a record Rs 1.1 trillion bonds in FY23.
“…combined issuances by banks and AIFIs touched a high of Rs. 2.0 trillion in FY2023, with gross bond issuances by banks reaching an all-time high of Rs. 1.1 trillion,” the report said.
“However, stronger foreign institutional investor (FII)/foreign portfolio investment (FPI)inflows, as seen recently, in addition to the derecognition of the Rs. 2,000 currency note and an anticipated dividend by the Reserve Bank of India (RBI) could ease liquidity conditions in the interim. This could potentially drive down the overall bond issuances below Rs 900 billion from the peak in the previous year,” ICRA said.
The Reserve Bank of India (RBI) started withdrawing the Rs 2000 banknote from circulation in the last week of May, though the note continues to be a legal tender. Liquidity surplus in the banking system, as indicated by the amount of funds parked by banks with RBI, crossed Rs 2 trillion on Tuesday.
Bank credit growth—it was 15 per cent in FY23—could moderate in FY24 though it will continue to outpace deposit growth. Deposits grew by 9.6 per cent in FY23.
The report said Tier-I/Additional Tier-I (AT-I) issuances are expected to trail the FY2022-FY2023 levels (Rs. 300-334 billion), partly due to lower scheduled call options, and will largely be dominated by public sector undertaking (PSU) banks.
“Accordingly, outstanding Tier-I bonds are expected to increase slightly to Rs. 1.3 trillion by March 2024 from Rs. 1.2 trillion as of March 2023,” it said.
Tier-II bond issuances are also expected to moderate from the peak level in FY2023 (Rs 49,600 crore), while some banks may still choose to raise infrastructure bonds, though this will largely be limited to a few banks, it said.
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