Kotak Mahindra Bank to raise Rs 7,000 crore through unsecured NCDs

Kotak Mahindra Bank, a private lender, has given its approval for the issuance of unsecured, redeemable, non-convertible debentures (NCDs) on a private placement basis. The bank plans to raise an amount not exceeding Rs 7,000 crore during the FY 2023-24, as stated in a regulatory filing.

The filing further said, "In this regard, the Share Transfer and Other Matters Committee of the Board of Directors of the Bank has been authorised to, inter alia, finalise the structure and the terms and conditions of the issue (including the timing of the issue, tenure, coupon/interest rate, schedule of re-payment/interest/coupon rate, security, any right/interest/privileges attached with the NCDs, etc)."

NCD stands for Non-Convertible Debenture. An NCD is a type of debt instrument issued by companies to raise funds from public or institutional investors. It is a fixed-income instrument with a specified maturity period and carries a predetermined coupon or interest rate.

Unlike convertible debentures, NCDs cannot be converted into equity shares of the issuing company. They remain as debt instruments throughout their tenure. NCDs provide a means for companies to raise long-term capital by borrowing money from investors and promising to repay the principal amount along with periodic interest payments.

Investors who purchase NCDs become creditors to the issuing company and are entitled to receive regular interest payments as per the agreed terms. At the end of the maturity period, the company returns the principal amount to the investors. NCDs are typically listed on stock exchanges, allowing investors to trade them before maturity if there is a secondary market for the particular NCD.

NCDs are considered relatively safer investments compared to equity shares since they offer fixed returns and have a higher priority in terms of repayment in case of the company's liquidation. Before investing in NCDs, investors should look at the credit rating of the firm which calculates the potential to raise cash from its internal and external operations and sustainability. This is the best parameter that can reveal the company's financial position. It is also important to understand the risks related to NCD investments. Returns are not guaranteed.

Also, investors should consider the capital adequacy ratio (CAR) and Interest Coverage Ratio (ICR). CAR gauges the company's capital and sees if the company has sufficient funds to survive potential losses. ICR, on the other hand, determines the firm's ability to comfortably settle the interest on its loans at any given time.

(Disclaimer: The information provided on this website does not constitute financial advice. It is recommended that individuals consult with a qualified financial advisor before making any investment decisions or taking any financial actions based on the content provided)