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HDFC gets best interest rate in borrowing market at 6.22 per cent

Anand Adhikari     June 18, 2020

The mortgage lender HDFC Ltd has raised Rs 5,000 crore through the debentures route at a coupon rate of 6.22 per cent from ICICI Bank, PNB Gilt, UTI and few mutual funds.

Like many blue chip companies, HDFC is also utilising the current opportunity to borrow from the market at one of the lowest rates from institutional investors that are sitting on cash and want safety of their money.

The state government actually pays upwards of 6.5 per cent rate for borrowing longer tenure funds from banks, insurance and other funds. The short term rates for states is more than 5 per cent. The central government borrows long term money at a rate little less than a 6 per cent from the market. HDFC is paying 6.22 per cent for less than 2-year paper, while it pays around 7.25 per cent for a 10-year paper.

The current low interest rate environment offers a good opportunity for HDFC to borrow short term funds. The current borrowing through non-convertible debentures (NCDs) have a maturity of less than two years.

In fact, Reliance Industries also mobilised over Rs 10,000 crore from banks at 6.95 per cent to 7.05 per cent. This rate was also amongst the best rate. Axis Bank, SBI, HDFC, Kotak Mahindra Bank, mutual funds and cooperative banks participated in the debt offering.

In the HDFC issue, ICICI Bank has parked the largest fund of Rs 3,600 crore. The remaining amount was put by SBI Fund Management, ICICI Prudential, PNB Gilt and UTI. HDFC would be utilising these funds for financing and refinancing the home loan business.

There is no dearth of funds for triple-A rated corporate and institutions. The risk-averse banks are flush with money post the Reserve Bank of India (RBI) liquidity infusion of over Rs 8 lakh this year. Many banks are returning this liquidity via reverse repo to the RBI.

A month ago, the RBI had announced Targeted Long Term Repo Operations (TLTRO) of three-year tenor for up to Rs 1,00,000 crore for banks to invest in investment grade corporate bonds, commercial paper and NCDs. This durable long term liquidity was provided to banks to support the COVID-19 impacted industries by way of short term funds or working capital.

But the risk-averse banks are in no mood to take any additional exposure in below investment grade companies. Surprisingly, many banks who used RBI's TLTRO window have quickly deployed the additional money in investment grade paper in the primary market.

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