The name’s Bond: HDFC Bank, Axis Bank battle it out in India’s growing corporate debt market

HDFC Bank Ltd. is threatening to end Axis Bank Ltd.’s decade-long reign as the largest arranger of rupee-denominated corporate bonds as sales climb to a record for a third straight year.

India’s most valuable bank has managed 481.5 billion rupees ($7.5 billion) of offerings so far this year, jumping 11 notches from 2014 to number two on Bloomberg’s league table. The lender is 95 billion rupees away from claiming the top slot, the data show.

Businesses in Asia’s third-largest economy have sold 3.6 trillion rupees of notes since Jan. 1, and may close 2017 raising twice that amount, as issuers tap a growing pool of capital with mutual funds and insurers at rates cheaper than what banks charge, according to Axis Bank. HDFC Bank didn’t refuse smaller deals as it caught up with rivals who chase big-ticket sales, said Sharad Rungta, head of debt capital market and debt syndication at the lender.

“We succeeded because we kept things simple and didn’t say a ‘no’ to arranging a 250-million rupee deal,” he said in an interview in Mumbai. “We are into pure distribution. We don’t hold bonds we arrange. That allows us to grow as we don’t put risk on our balance sheet.”

Axis Bank says relationships with issuers and investors forged over the past 15 years will help maintain its leadership position.

“History has shown that few arrangers did come close to us but couldn’t take our position,” said Shashi Kant Rathi, head of investments and capital markets at the lender. “Our reach and connect with issuers and investors is strong.”

Both HDFC Bank and Axis Bank say the issuance will be driven by companies looking to reduce dependence on bank loans as well as by the desire to lock into yields that are near rock-bottom. Mutual funds flushed with cash and bank treasuries have been eager buyers amid weak demand for loans.

Mutual funds’ assets reached a record 20 trillion rupees in June, with debt funds making up 41 percent of the pie, data from the Association of Mutual Funds in India show. Average yield on top-rated three-year notes is at 7.23 percent — 92 basis points lower than a similar tenor loan at the State Bank of India, the nation’s largest lender.

“Weak growth in credit offtake and asset-quality stress has pushed some banks on the back foot, prompting issuers to look at an alternate source of funding,” HDFC Bank’s Rungta said. “The view that the rate cycle is close to bottoming out is giving issuers the confidence to lock in. Looks like issuance will climb to a record this year too.”