To raise Rs1,000 crore through its first infrastructure bond, the Bank of Baroda is in discussions with ICICI Pru Life and LIC

10 Aug 2022 , 08:11 AM

As the private sector constructs new roads, solar power plants, and airports, the Bank of Baroda is about to offer infrastructure bonds for the first time on the local market, heralding the acceleration of a new infrastructure cycle.

The bank hopes to fund up to Rs1,000 crore through a private placement, and LIC of India and a consortium of insurers, including ICICI Prudential Life, are in talks to subscribe, stated reports.

According to persons with knowledge of the situation, the paper will have a duration of seven years and may offer 7.10—7.35% depending on investor response. On Friday, bids will be accepted for the bonds.

The money raised will be utilized to provide loans to the infrastructure industry and people looking to purchase low-cost homes in the so-called affordable housing segment.

Insurance companies can now wager on these bonds thanks to a recent regulator clarification. The Insurance Regulatory and Development Authority of India stated in a statement dated August 3 that investments made by insurers in long-term bonds issued by banks for the purpose of financing infrastructure and affordable housing would not be regarded as exposure to the banking and financial services sector.

This has eliminated any ambiguity regarding the sector-specific limits that an insurance firm must follow.

The market for infrastructure bonds is typically dominated by private sector lenders. Such bonds were sold by Punjab National Bank in 2015, but state-run banks rarely issue these securities.

The infrastructure bonds issued by the Bank of Baroda have been rated triple-A with a “stable” outlook by ICRA and India Ratings.

As of March 31, 2022, the government held a 63.97% equity holding in the Bank of Baroda, making it the company’s largest stakeholder. Between FY2018 and FY2020, it made infusions into the bank totalling Rs21,739 crore.

According to ICRA, the Bank of Baroda had a market share of 6.7% in loans and 6.5% in deposits as of March 31, 2022, making it the second largest state-run bank in India by assets.

Shares of Bank of Baroda have increased by 51% this year, surpassing the approximately 7% increase in the BSE Bankex sector barometer.