Data collected by Prime Database shows that the share of financial sector entities in the total amount raised through private placement of bonds during April-September 2012 declined to 73.1 per cent from 90.3 per cent in 2011-12 and 78.3 per cent in 2010-11.
The financial entities include primarily banks and non-banking finance companies (NBFCs). According to some reports, the share may decline further in the next one year, 2013-14 as banks might no longer raise Tier-II bonds and NBFCs are not expecting significant pick-up in their business.
Some reports attribute the decline in bond issue by banks to muted credit growth. Banks were also not borrowing because these bonds cannot form a part of capital adequacy under Basel-III norms, said N Seshadri, executive director, Bank of India.
Basel-III implementation will begin from April 1, under which equity capital and retained earnings are the predominant form of Tier-I capital.
As Tier-II will not be counted, raising deposits will be a better way to go forward, some industry players feel. NBFCs went slower with private placement of bond issuances because their credit growth was also slower compared with last year. The other reason for slower issuances by NBFCs was deferral of rate cuts by the Reserve Bank of India.