Muthoot Finance plans floating-rate bond issue of Rs 2,000 cr

Gold loan provider Muthoot Finance is expected to raise up to Rs 2,000 crore next week in floating-rate bonds (FRB) maturing in three years, two people aware of the matter told ET, tapping into a growing market for these instruments linked to a more stable, shorter-duration external benchmark.

The paper will be priced 300 basis points above the 91-day treasury bill, said the people cited above.

One basis point is a hundredth of a percentage point. The 91-day T-bill has increased 21 basis points to 5.50% this calendar year. The 10-year benchmark rate, by contrast, has increased 48 basis points to 7.08% as of Wednesday.


The coupon will be reset every quarter, unlike fixed-rate bonds. The bond issue is being arranged by ICICI Securities PD and AK Capital.

Muthoot finance did not respond to mailed queries by press time.

"Fixed-rate corporate bond yields have risen amid expectations of a rate hike, prompting issuers to look for ways to avoid locking in borrowing costs at elevated levels," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm. "Many companies now are turning to FRBs, which are priced very competitively, with borrowing costs in some cases even coming in below comparable bank lending rates."

FRBs gained traction as interest rates are expected to rise. Its coupon is benchmarked to 91-day T-bill, allowing issuers to avoid locking in elevated long-term yields.

For AAA-rated companies, a five-year bond had a return of around 6.65% in May 2025, for 10-year paper, the rate was at 6.85% in May 2025. In May 2026, a five-year paper has an interest rate of around 7.90%, while a 10-year paper had an interest rate of 7.74%.


For instance, Cholamandalam Investment and Finance is expected to raise Rs 3,000 crore next week. On Wednesday, Tata Capital raised Rs 4,000 crore at a 210 bps spread and ICICI Home Finance raised Rs 550 crores at a 193 bps spread over T-bills.

According to Srinivasan, if Cholamandalam, a company rated AA+, raises at 91-day T-bill rate of 5.50% and a spread of 275 bps, the total rate would go to 8.25%. In comparison, Nabard, a public sector AAA rated company, raised Rs 3,000 crore last week at 8%.

“It is interesting because every five years or so, we see these FRBs getting traction. And the three-month T-bill rate is relatively more stable as compared to the 10-year benchmark rate. This stability gives more confidence to issuers,” said a debt capital market expert at a large bank “There has been a rise in FRB issuances over the past fortnight. Issuers looking to tap the FRB market may have to move quickly because spreads are likely to widen as demand increases.”