As competition for deposits increases, the public sector lender Punjab and Sind Bank is turning to infrastructure bonds as a cost-effective way to raise funds. These bonds are attractive to banks as they provide tax exemptions and do not count towards regulatory reserve requirements or priority sector lending. Punjab and Sind Bank has approvals in place for an overall fundraising of Rs 10,000 crore, including QIP and bond offerings. These bonds have been given an "AA\Stable" rating by CRISIL and the domestic bond yields have remained stable in recent months, according to the RBI's monthly bulletin.
Punjab National Bank to Raise Funds via Qualified Institutional Placement and Infrastructure Bonds
Background
Punjab National Bank (PNB), one of India's largest public sector banks, has announced plans to raise funds through a Qualified Institutional Placement (QIP) and infrastructure bonds. This move comes amid increasing competition for deposits in the banking sector.
Qualified Institutional Placement (QIP)
A QIP is a fundraising mechanism where a company issues new shares to qualified institutional buyers (QIBs), which include mutual funds, insurance companies, and foreign institutional investors. PNB plans to raise Rs. 10,000 crore through a QIP to strengthen its capital base and comply with regulatory requirements.
Infrastructure Bonds
Infrastructure bonds are debt instruments issued by banks and financial institutions to finance infrastructure projects. These bonds provide tax benefits and are exempt from regulatory reserve requirements, making them an attractive option for banks to raise funds. PNB has received approvals for an overall fundraising of Rs. 10,000 crore, including both QIP and bond offerings.
Rationale
PNB's decision to raise funds through a QIP and infrastructure bonds is strategic for several reasons:
Top 5 FAQs
1. What is the purpose of PNB's QIP and infrastructure bond issuance? To raise funds to strengthen its capital base and finance infrastructure projects.
2. How much is PNB planning to raise? Rs. 10,000 crore through a combination of QIP and bond offerings.
3. What is the rating of PNB's infrastructure bonds? "AA\Stable" by CRISIL.
4. Are QIPs open to retail investors? No, QIPs are only open to qualified institutional buyers.
5. How do infrastructure bonds benefit banks? They provide tax benefits and are exempt from regulatory reserve requirements, reducing funding costs.
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