According to bankers and analysts, there is a good chance that Indian banks would continue raising funds actively through debt markets in the first quarter of 2023.
This is due to the fact that financial institutions are working on financing credit demand and strengthening their capital base while the market conditions remain favorable.
Market condition
Market analysts said that banks are beefing up their capital because the market condition appears to be conducive when you consider the long-term bond rates.
During the period of October to December, the private and state-run banks in India managed to raise an aggregate of $7.39 billion or 611.94 billion rupees.
According to statistics, this was almost double the amount raised between July and September, which stood at 301.34 billion.
As far as the January to March quarter of 2023 is concerned, the banks are expected to raise about 300 billion rupees, as their goal would be to get as much funding as possible in a tight liquidity situation.
The fundraising that banks have done so far in this fiscal year has already surpassed that of the previous year when a total of 760 billion rupees had been raised by banks.
Need for capital
It is possible that market-based funding may also be the only option for state-run banks because the government has not made any major capital infusion.
According to analysts, adequate funding is required by banks, but the government does not seem to be too keen to infuse more capital.
Therefore, it is highly likely that banks would be borrowing high around mid-February because state-run banks would be aware by then of the dividend that has to be paid and the amount of capital coming in.
The lenders
In recent months, HDFC Bank is the private bank that has been leading the charge, as it managed to raise about 230 billion rupees.
However, bankers said that the State Bank of India, which is the largest lender in the country, will overcome its rival before the year’s end.
Between July and December, about 208.72 billion rupees have been raised on aggregate by SBI and it is set to raise another 100 billion in the next quarter through infrastructure bonds and perpetual bonds.
Bonds will also be issued by other lenders, such as the UCO Bank, the Central Bank of India, and the Punjab and Sind Bank.
Moreover, there is a strong possibility that the Punjab National Bank and the Bank of Baroda will be able to complete their residual targets.
Analysts further indicated that capital is required by all banks and this fact has been highlighted by the Reserve Bank of India several times.
The Indian central bank has asserted several times that they want banks to have a strong capital position.
Therefore, this increases the possibility that any lenders that have not yet stepped into the market for raising capital could now come in with issuances because they will need capital in the coming year.