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http://www.livemint.com/Industry/zYDZxcD9izqp01RR5ClaUO/Credit-quality-worries-hit-bank-bond-issues.html

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Most of the bank bonds have been direct placements with either EPFO (Employees Provident Fund Organization) or LIC (Life Insurance Corporation), but they are also reaching their limits,” said a second bond arra-nger, also requesting anonymity.

Some banks are finding investors in unexpected corners as well. A case in point is Dena Bank, which raised Rs.1,000 crore last week by directly placing its tier-I bonds with Power Finance Corporation (PFC). However, the public sector bank had to pay 10.90% as yield on these bonds.

Tier-I bonds, also called perpetual bonds, do not have a fixed tenure and hence demand a higher premium compared with other bank bonds. The last time Dena Bank raised money through such bonds was in March 2015, when it paid 10.20% as yield. The bonds of the public sector lender are rated AA– by CARE Ratings and AAA by Crisil.

“We were able to raise the funds at a reasonable rate as we went to PFC before anyone else. The entire Rs.1,000 crore amount was raised through bond sales to PFC,” said a senior official at Dena Bank on condition of anonymity as he is not allowed to speak to the media.

PFC is a regular issuer of bonds and one of the biggest borrowers from the bond market. However, it has not been known to buy bank bonds in large quantities in the past.

Others PSBs such as IOB are even considering going for a public issue of bonds to raise capital. “IOB is in talks with some arrangers to discuss the possibility of a retail issue as they are not getting much success in finding investors through the private placement mode,” said the first bond arranger quoted above.

As of September 2015, the ratio of stressed advances (including restructured loans and gross bad loans) to total advances in the banking system rose to 11.3%, from 11.1% in March, according to data from the Reserve Bank of India.