Bank of Baroda raises Rs 5,000 cr at 7.68%; what’s next?

On November 18, Bank of Baroda had announced that its capital raising committee has approved to raise up to Rs 15,000 crore via bonds. This includes a sum up to Rs 5,000 crore through the issuance of tier-II debt bonds and a maximum of Rs 10,000 crore through infrastructure bonds

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Bank of Baroda on November 30 raised Rs 5000 crore at a coupon rate of 7.68 percent via infrastructure bond issuance. It was done on a private placement basis and the bonds will be listed after three days, following which they will be available for trading.

The debt security is drawing mixed opinions from fund managers and analysts. While the bonds are highly rated, fixed deposits from small finance banks can give better returns, some experts said.

Rated ‘AAA’ with a ‘Stable’ outlook by CRISIL and India Ratings, these bonds require a minimum application size of Rs 1 lakh, available in multiples of the same amount.

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“The ratings continue to factor in an expectation of strong government support, both on an ongoing basis and in the event of distress. BoB remains adequately capitalised with Tier I and overall capital adequacy ratio (under Basel III) at 13.19 percent and 15.30 percent respectively as on September 30, 2023,” CRISIL noted.

Pankaj Pathak, fund manager – fixed income, Quantum Mutual Fund also shares the same view when it comes to PSU infra bonds in general. “We assign higher weightage to the issuer profile while evaluating these issue. We don’t see any problem with most of the PSU infra bonds,” he said.

However, from a retail investors’ perspective, there are better options, believes Anshul Gupta, co-founder and chief investment officer at Wint Wealth.

“Fixed deposits by small finance banks might be a better option that are offering up to 8.5-9 percent return. Fixed deposits are also easy to liquidate, where as bonds might not find buyers,” Gupta said.

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“Even Bajaj Finance fixed deposit has a higher 40-50 basis point higher yield than this bond,” he added.

On November 18, Bank of Baroda had announced that its capital raising committee has approved to raise up to Rs 15,000 crore via bonds. This includes a sum up to Rs 5,000 crore through the issuance of tier-II debt bonds and a maximum of Rs 10,000 crore through infrastructure bonds. The maturity of the bonds will range between 7-year to 10-year.

In August 2022, the lender had raised Rs 1000 crore through a sale of infrastructure bonds maturing in seven years at 7.39 percent coupon.