Bangalore: Power bonds from the centrally owned power sector companies have found few takers among public sector banks (PSBs). Public sector bank officials said that they had little interest in the power bonds. PSBs are currently sitting on an investment portfolio in excess of Rs 12 lakh crore, translating into an investment deposit ratio of 33 per cent. On an incremental basis, however, the investment deposit ratio was closer to 100 per cent for the current financial year.
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The bonds were issued to the central power sector companies against the overdues of the State governments to power majors such as the National Thermal Power Corporation Ltd, the National Hydro-Electric Corporation Ltd, Neyveli Lignite Corporation and the North East Electric Power Corporation. Essentially this implied a securitisation of the state electricity board's overdues. Bond holders also have lien on states' central transfers, as an additional security cover. Power bonds carry coupons of 8.5 per cent.
However, despite the water-tight servicing mechanism, the bank officials said the securities did not fit into the same league as State Development Loans (SDL). SDLs are sovereign guaranteed papers, eligible securities for maintenance of Statutory Liquidity Ratios (SLR) and therefore eligible for repurchase operations at the RBI window.
Power bonds are not eligible for repos at the RBI window, the officials said. With deposit accretions coming at the rate of Rs 7,000 crore per day, bank requirements for SLR securities are expected to mount in the coming weeks.
As a result, the preference was heavily weighted in favour of government securities. Government borrowings have been hitting the market since the beginning of this financial year at about Rs 10,000 crore per week.
The heavy preference for the government securities was also evident from the bid-to-cover ratios. This ratio indicates the preference for a security.
Ideally, bid-to-cover ratios in excess of 1.5 times are treated as good, since it implied that the demand exceeded the notified amounts. Since the beginning of this financial year, the bid-to-cover ratios for dated government securities ranged between 2.5 and 3 times. Besides, the situation was identical in the case of SDL issues this fiscal.
Release of securities
Consequently, few banks were interested in the power bonds. Earlier too, the RBI had permitted release of the securities. As a result, securities maturing up to 2012 are already floating in the market. This year, for the power companies, another Rs 10,000 crore of power bonds have become eligible for sale.
Banks that had picked up the power bonds in the past are holding it in their held-to-maturity category of securities. Besides, the bonds to be released are also of little interest to life insurance companies, in view of the short maturities. Life insurers' preferences are weighted mostly in favour of long-dated securities.
But sources said that the power companies were not in a hurry to sell the securities. Although they have large project funding requirements, most of them preferred to wait till interest rates soften further.
