IDBI Bank does a novel bond switch

IDBI Bank and Birla Mutual Fund last week did a novel bond swap deal that would help the mutual fund reduce the risk of holding long-term illiquid securities.

IDBI Bank and Birla Mutual Fund last week did a novel bond swap deal that would help the mutual fund reduce the risk of holding long-term illiquid securities.
MUMBAI: State-owned IDBI Bank and Birla Mutual Fund last week did a novel bond swap deal that would help the mutual fund reduce the risk of holding long-term illiquid securities and boost the bank’s portfolio with long-term safe assets ahead of its possible privatisation. The Rs 1,740-crore deal led to IDBI buying bonds with tenors of as high as 28 years and selling equal amount of bonds with tenors of near term maturity liquid benchmark bonds to Birla Sun Life Mutual Fund, said two people familiar with the transaction.

The deal may also indicate that the bank is bullish on long-term interest rates as the Reserve Bank of India and the government appear committed to curb inflation to 4% or even lower. Interest rates and bond prices move in opposite direction.

“The specific cases of bond sale transactions referred to were carried out to book profit. Fresh purchases were made at market levels considering overall maturity profile, rate of interest, etc,” IDBI Bank said in an email.

The choice of securities are based on both the bank’s portfolio position and market factors as well as the likely emerging scenarios. RBI may reduce the policy interest rate by at least a quarter point on April 5 when it reviews monetary policy, the bank said. Birla MF did not reply to ET’s email queries.
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