Indian Banks Rise on Approval to Sell Debt Exempt From Reserves

Photographer: Prashanth Vishwanathan/Bloomberg

Trucks laden with iron ore sit in traffic on a bridge en-route to Paradip Port in Paradip, Odisha. Prime Minister Narendra Modi, in his first budget presented last week, pledged $25 billion to boost spending on developing the nation’s infrastructure, including highways, power plants, ports and housing. Close

Trucks laden with iron ore sit in traffic on a bridge en-route to Paradip Port in... Read More

Close
Open
Photographer: Prashanth Vishwanathan/Bloomberg

Trucks laden with iron ore sit in traffic on a bridge en-route to Paradip Port in Paradip, Odisha. Prime Minister Narendra Modi, in his first budget presented last week, pledged $25 billion to boost spending on developing the nation’s infrastructure, including highways, power plants, ports and housing.

Indian bank stocks rose after the central bank allowed lenders to sell long-term bonds exempted from reserve requirements to boost funding for infrastructure and affordable housing.

The rupee-denominated bonds will have a minimum maturity of seven years and will be free from cash reserve and statutory liquidity ratio requirements, as well as so-called priority sector lending targets, the Reserve Bank of India said yesterday. The S&P BSE Bankex index, which tracks 12 bank stocks, was poised for its longest winning streak in two weeks.

“Exemptions on reserves give banks access to funds at comparatively cheaper rates,” M. Narendra, chairman and managing director of Chennai-based Indian Overseas Bank, said in a telephone interview yesterday. “We are planning to raise funds through this avenue to finance existing infrastructure loan book and to do incremental lending.”

Prime Minister Narendra Modi, in his first budget presented last week, pledged $25 billion to boost spending on developing the nation’s infrastructure, including highways, power plants, ports and housing. Loans for so-called priority housing rose 9 percent in the year to May 30 from a year earlier, compared with a 29 percent increase in home financing excluding priority lending, RBI statistics show.

The Bankex rose 0.9 percent as of 11:54 a.m. Mumbai time, poised for a third day of gains. State Bank of India, the nation’s largest lender, gained 1 percent, while ICICI Bank Ltd. (ICICIBC) climbed 2.8 percent. Indian Overseas, which isn’t part of the Bankex, lost 0.8 percent.

Affordable Housing

Modi and Finance Minister Arun Jaitley are making the improvement of India’s infrastructure a priority as they seek to boost the nation’s economic growth rate from near a 10-year low and curb inflation. They want to encourage private-sector funding of projects to allow for more than the government itself can finance.

The RBI defined affordable housing to include loans to individuals for as much as 5 million rupees ($83,000) to buy property in the nation’s six biggest cities, and 4 million rupees in other locations.

Under RBI rules, Indian banks must provide at least 40 percent of their loans to priority sectors including agriculture and small businesses. They also need to keep 4 percent of total deposits as cash reserves with the central bank, and 22.5 percent invested in mostly government bonds to meet the statutory liquidity ratio.

“The central bank’s move makes it easier for banks to finance infrastructure projects by addressing asset-liability mismatches,” Arindam Saha, a Kolkata-based analyst at Credit Analysis & Research Ltd., said by phone. “The cost of funds will fall as lenders are being allowed to raise these funds without setting aside reserves.”

To contact the reporters on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net; Anto Antony in Mumbai at aantony1@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net Darren Boey, Russell Ward

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.