Non-bank bond issuances likely to increase amid strong demand: Report

Strong demand from mutual funds and insurance companies at India's largest issue of bonds by a non-banking entity for the current financial year is likely to prompt similar issues in the near-term, five merchant bankers said on Tuesday.

Small Industries Development Bank of India (SIDBI) raised 80 billion rupees ($956.5 million) through bonds maturing in four years and five months at a coupon of 7.34%, slightly better than market expectations.

The issue, rated AAA by rating agencies, received bids worth 110 billion rupees.

"Despite ongoing negative liquidity in the banking system, AAA-rated corporate bonds continue to draw substantial interest from institutional buyers, driven by expectations of future rate cuts by the Reserve Bank of India," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap.

India's banking system liquidity deficit hit a three-month high as of Sept. 23. Demand for bond issues tends to be subdued during times of cash shortfall.

SIDBI's ability to secure such a favourable rate despite the large issue size will likely encourage other large corporates to explore the bond market for their funding needs, Srinivasan said.

Indian firms have raised around 4.4 trillion rupees through private placements so far this fiscal year, with a push witnessed in the current quarter, data from Prime Database showed.

"July and August have seen an increase as borrowing rates softened, reflecting a fall in benchmark (government) bond yields," said Pranav Haldea, managing director of Prime Database Group said.

Government bond yields have eased by 15-20 basis points in July-September, and a similar trend has been witnessed in corporate yields, as the global interest rate cycle has turned. ($1 = 83.6400 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Varun H K)