Banks eye Rs 1 trillion through infrastructure bond issuances in FY25

So far, lenders have raised Rs 74,256 cr

Infrastructure bond issuances by commercial banks in the current financial year (FY25) are likely to surpass Rs 1 trillion, almost double that of FY24, market participants said.

 

So far this financial year, banks have raised Rs 74,256 crore via infra bonds. In FY24, the total issuances stood at around Rs 51,081 crore.

 

State-owned banks have increasingly tapped the domestic capital market to raise funds through infra bonds to fund credit growth as deposit mobilisation has been a challenge. Banks such as State Bank of India, Bank of Baroda, Canara Bank, Bank of Maharashtra, Bank of India, and Indian Bank have also raised sizable amounts through infra bonds in the current financial year.

 

Infra bonds are particularly appealing to large institutional investors due to their superior credit quality, which align well with the risk profiles of long-term investors. These bonds are often preferred over subordinated instruments such as Tier-2 and Additional Tier-1 (AT1) bonds, which carry higher risk.

 

Sources said that funds raised through infra bonds is advantageous for banks because it is exempt from regulatory reserve requirements such as statutory liquidity ratio (SLR) and cash reserve ratio (CRR). 

 

Unlike funds raised through deposits, where banks must maintain 4.5 per cent of the amount as CRR with the Reserve Bank of India (RBI) and invest approximately 18 per cent in securities to meet SLR obligations, infra bond proceeds can be fully deployed for lending activities.

 

“The total amount raised through infrastructure bonds so far this financial year stands at approximately Rs 75,000 crore. This figure is expected to cross Rs 1 trillion by the end of FY25,” said Venkatakrishnan Srinivasan, founder & managing partner, Rockfort Fincap LLP.

 

“Banks across India are increasingly turning to infrastructure bonds as a strategic funding tool, capitalising on their cost-effectiveness and regulatory benefits compared to Tier-2 and AT1 bonds,” he added.

 

In November, State Bank of India raised Rs 10,000 crore through 15-year infra bonds at a coupon rate of 7.23 per cent, taking the total money raised through these long-tenor papers to Rs 30,000 crore in FY25.

 

Additionally, Bank of India is planning to raise Rs 5,000 crore through the issuance of 10-year infra bonds on Wednesday. The issuance will have a base issue size of Rs 2000 crore, and an additional greenshoe option of Rs 3000 crore. The bank had raised Rs 5,000 crore through 10-year infra bonds in July at a coupon rate of 7.54 per cent.

 

“Banks are getting good rates through infra bonds, especially through longer-tenure bonds, because demand is there. Fifteen-year bonds are coming up in the market, and we can expect some more issuances in the tenure in this quarter and next,” said a dealer at a state-owned bank.