IDBI Bank intends to raise Rs. 300 crore this month by issuing perpetual bonds. Mr. P Sitaram, chief financial officer, IDBI Bank said, “The amount raised will be to meet Tier-I capital requirement of the bank.”
A perpetual bond is a bond without a maturity or redemption time. The holder of this bond can earn coupons permanently. As there is no necessity of redeeming these bonds they are as good as equity instead of debt.
It is likely that the coupon rate here will be priced anywhere between 9.5-9.7 %. It has been seen that high coupon rates are being offered by firms as lure to entice clients, if they are adopting the debt path to generate capital.
Ajay Manglunia, senior vice-president, Edelweiss Securities said, “The coupon is priced slightly higher. Last month, State Bank of India’s AAA-rated perpetual bond issue was priced at a coupon of 9.05%”.
Cash reserve ratio (CRR) has already gone up by as much as 75 basis points in order to tighten the money market. After credit policy review, IDBI Bank has taken the initiative to increase deposit rates succeeded by ICICI and HDFC Bank. All these measures are tools for enticing clients for hiking the capital for the bank.