The corporate bond market is catching up with banks in terms of transmission of rate cuts, even as long-tenure yields fell by 29 bps since the 50-bps reduction in repo rate by RBI on September 29.
State-owned Rural Electrification Corporation (REC) is set to raise Rs 2,585 crore through bonds having a tenure of 10 years at a coupon rate of 8.11%, according to information provided by bond arrangers who have also indicated that the pay-in date for the issue is October 7.
Bloomberg data show two other state-owned companies — Power Finance Corporation and Power Grid Corporation — had in mid-September issued 10-year bonds at 8.40%. This shows that long-term bond yields have fallen 29 bps since the middle of the previous month.
Exim Bank also issued 10-year bonds on September 23 at a yield of 8.25%.
“However, Exim Bank’s bonds always carry lower yield compared to some of the other AAA-rated PSUs,” a bond arranger said.
After the repo rate cut on September 29, banks have acted fast in transmitting the reduction in rates, at least to a reasonable quantum. The country’s largest lender, State Bank of India, reduced its base rate by a whopping 40 basis points, bringing it down to 9.30%. Other banks have also trimmed their base rates by 25-35 basis points.
Despite this, corporate bond yields are still lower by at least 100-120 bps compared with banks’ lending rates.
This difference in rates has made the bond market the most attractive source of borrowing among corporates. It is evident from the fact that between April and September, firms mopped up a whopping R2.42 lakh crore through this route.
Meanwhile, non-food credit shrank by R1.58 lakh crore between April and mid-September, with the credit offtake still continuing in single digits.With yields going to such low levels in corporate bonds, market experts believe firms are likely to start approaching the market in good numbers.
In the tax-free bonds segment, Housing and Urban Development Corporation is planning to issue 10-year bonds worth Rs 320 crore at a coupon rate of 7%, bond arrangers said.