Bond issuance are pulled by Nabard and PFC as investors seek larger coupons.

After investors wanted a higher coupon rate in anticipation of a rate cut by the Reserve Bank of India (RBI) in December, the National Bank of Agriculture and Rural Development (Nabard) and Power Finance Corporation cancelled their plans to issue bonds. According to money market specialists, investors sought to lock in higher rates before a potential rate cut. According to a dealer with knowledge of the situation, "the rates offered on the bonds were close to the secondary market levels of these bonds of similar maturity, but companies rejected the bids citing high coupon." With a greenshoe option of Rs 5,000 crore, Nabard intended to raise Rs 7,000 crore. After three years and three months, the bonds were scheduled to mature. According to market sources, it received 12 bids at a coupon rate of 6.74 percent, totaling Rs 2,480 crore; 13 bids at a rate of 6.75 percent, totaling Rs 3,805 crore; 15 bids at a rate of 6.76 percent, totaling Rs 5,330 crore; 14 bids at a rate of 6.77 percent, totaling Rs 6,880 crore; and 12 bids at a rate of 6.78 percent, totaling Rs 9,430 crore. Nabard and Power Finance Corporation decided to scrap their planned bond issuances after investors demanded higher coupon rates, anticipating that the Reserve Bank of India may cut interest rates in December. Investors are looking to secure higher returns before the expected rate reduction, which led them to place bids at elevated coupon levels. This created a situation where the borrowing costs proposed by the market were higher than what the issuers were prepared to accept. Although Nabard received significant interest—with bids ranging from a 6.74 percent to 6.78 percent coupon—the rates were considered too steep compared to the organization’s expectations. Market participants noted that these rates were aligned with secondary market yields for similar tenures, but Nabard and PFC still deemed them expensive. As a result, both institutions preferred to wait rather than lock in long-term borrowing at unattractive costs. Nabard’s issue, which aimed to raise Rs 7,000 crore with a greenshoe option of Rs 5,000 crore, saw bids totaling nearly Rs 9,430 crore at the upper coupon limit. Despite the strong demand, the high-interest rates quoted by investors signaled a mismatch between market expectations and issuer comfort levels. Issuers typically aim to borrow at the lowest cost possible, and with the likelihood of a rate cut approaching, accepting these bids would have increased their future financial burden. The withdrawal of these bond issuances reflects cautious behavior among major borrowers in the current interest-rate environment. With rate cuts anticipated and volatility persisting in global markets, many institutions may delay fundraising until more favorable conditions emerge. This trend may continue until the RBI provides clearer direction in its upcoming policy meeting.