IndusInd Bank has raised Rs110bn ($1.26bn) by selling certificates of deposit (CDs), reported The Economic Times, citing the Clearing Corporation of India (CCIL) data.
This move comes as the bank seeks to strengthen its funding position following the revelation of a Rs20bn accounting discrepancy in its derivatives book last week.
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The fundraising indicates a likely return of investor confidence in the bank.
Last week, the Reserve Bank of India (RBI) stated that IndusInd Bank “is well-capitalised and the financial position of the bank remains satisfactory”.
The bank issued CDs across six maturities, ranging from three months to one year, with interest rates between 7.80% and 7.90%, according to CCIL.
Despite raising funds at slightly higher rates compared to its peers, the bank’s ability to mobilise Rs110bn crore in a single day suggests investor confidence in the RBI’s assurance of the bank’s satisfactory financial position, the report said.
The RBI’s statement followed a 27% drop in the bank’s share price on 11 March after the Hinduja Group-promoted lender disclosed accounting lapses.
The fundraising has alleviated concerns about IndusInd Bank’s capacity to raise funds, especially given that 50.8% of the promoter’s stake is pledged.
Currently, the Hinduja Group holds a 16.29% stake in the lender.
The CDs raised by IndusInd Bank accounted for over 40% of the total CDs issued by all banks on 17 March.
As per CCIL data, banks issued CDs worth Rs271.4bn on the same day.
Some banks may have issued CDs to invest in IndusInd Bank’s CDs, according to money market sources.
IndusInd Bank’s one-year CDs were priced at 7.90%, compared to Axis Bank’s 7.62% for the same maturity.
A treasury head from a private bank told the publication that despite higher pricing, the key takeaway is IndusInd’s ability to create a Rs110bn liquidity buffer in one day.
Interestingly, there were no trades of IndusInd Bank bonds in the secondary market, indicating a preference for direct investment in the primary market.
On 15 March, the RBI directed IndusInd Bank to complete remedial actions within the current quarter after hiring an external audit team to review its systems.
“As such, there is no need for depositors to react to the speculative reports at this juncture. The bank’s financial health remains stable and is being monitored closely by Reserve Bank,” the central bank said at the time.
