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Informist, Monday, Dec. 29, 2025

 

By J. Navya Sruthi and Vaishali Tyagi

 

MUMBAI – National Bank for Agriculture and Rural Development scrapped a bond issue Monday, citing higher coupon rates, market participants and officials said. This is the second time the apex development bank scrapped the bond issue in a little over a month.

 

NABARD had tapped the market to raise up to INR 70 billion through the issuance of bonds maturing on Feb. 23, 2029. According to the bid books accessed by Informist, the company received 84 bids, totalling INR 124.60 billion, with coupon rates ranging from 6.84% to 7.12%. The company had invited bids on Nov. 25 to raise the same amount through the same bond but withdrew the issue for the same reason.

 

"We were expecting the coupon to be in the range of 6.70-6.75%, but it was too high," a NABARD official told Informist on condition of anonymity. "Even after the RBI (Reserve Bank of India) rate cut and liquidity operations, rates are not cooling down. Investor interest was there. We have received around INR 12,000 crore in bidding, with EPFO (Employees' Provident Fund Organisation), insurance companies, and pension funds showing interest, though they were not aggressive. All banks were present."

 

Yields on corporate bonds have continued to rise in the secondary market despite the RBI's 25-basis-point rate cut, as the market views the December rate cut as the last in the current cycle. The weighted average yield on NABARD's Feb. 1, 2029, bond was 7.36% Friday.

 

Several state-owned companies have scrapped their bond issuances since Nov. 25 for the same reason. In addition to NABARD, Power Finance Corp., Small Industries Development Bank of India, and Indian Railway Finance Corp. have collectively withdrawn bond issuances adding up to INR 395 billion.

 

"It is not any trend with PSUs (public-sector undertakings) but personally, I feel, as an issuer, this is a correct way of thinking, as 3-5 bps (higher coupon) makes a lot of difference. This (scrapping bond issuances because of higher coupons) will help to keep a lower supply (of bonds)," said Killol Pandya, head of fixed income at JM Financial.

 

REVIVAL SOON

Liquidity in the banking system has been in deficit since Dec. 16, contributing to rising rates. Though INR 696 billion worth of "AAA" bond issuances by public-sector undertakings were scheduled since Nov. 25, only INR 301 billion was eventually raised.

 

Mutual funds have been selling corporate bonds because of redemption pressure from banks, which in turn are seeking to meet advance tax and goods and services tax payment requirements. The RBI's net injection into the banking system--a proxy for the liquidity deficit--was INR 623 billion Sunday, similar to that on Saturday and Friday.

 

"Tight liquidity (in the banking system) will continue till the New Year and yields will settle down in January on RBI's liquidity measures," Pandya said. Tuesday, in a bid to infuse liquidity, the central bank announced it would buy INR 2 trillion of government bonds through open market operations in four tranches across December and January. The central bank will also conduct a three-year dollar-rupee buy-sell swap auction on Jan. 13 for $10 billion.

 

Market participants expect state-owned companies that withdrew their bond issuances in this quarter to return to the market in the next quarter as yields are expected to ease following the RBI's measures. "... we expect to tap in January again, as we expect rates to cool down as liquidity pressure eases," the NABARD official said. "We also expect yields to come down as we expect FIIs (foreign institutional investors) buying in G-sec (government securities) in January, which will pull yields down. This will impact corporate bond yields as well."  End

 

Edited by Rajeev Pai

 

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