Indian banks eye record infra bond issue for second straight financial year

If successful, funds raised via these bonds in the first five months of the current fiscal year started in April will surpass the Rs 544 bn raised in FY 2023-24

Indian banks are set to raise around Rs 40,000 cr ($4.79 bn) through infrastructure bonds in July and August, potentially setting a record for the second consecutive year, according to five merchant bankers on Friday.
 

If successful, funds raised via these bonds in the first five months of the current fiscal year started in April will surpass the Rs 54,400 cr raised in fiscal year 2023/24.
 

Infrastructure bond issues had picked up last year, and the trend will continue as the gap between credit demand and deposit growth continues, said Shameek Ray, head of debt capital markets at ICICI Securities Primary Dealership.
 

Government spending on infrastructure and a pick-up in investment in sectors like steel, roads and renewable energy is generating demand for funds, said  Arnab Cahoudhury, head of debt capital markets at SBI Capital Markets.

Infrastructure bonds are issued to finance long-term development projects.
 

Canara Bank and Bank of Baroda are likely to raise Rs 10,000 cr each, while Bank of India is expected to raise Rs 5,000 cr, three of the bankers said.
 

HDFC Bank, India's biggest private bank, is also in early talks to raise around Rs 10,000-15,000 cr, they added.

None of the banks responded to Reuters' request for confirmation.
 

So far this fiscal year, State Bank of India has raised Rs 20,000 cr, and ICICI Bank has raised Rs 3,000 cr through these bonds.

Investor appetite for long-duration infrastructure bonds could spur more issuances in the coming months, Choudhury said.

According to the interim budget announced in February, the federal government plans to spend over Rs 11 trillion this fiscal year on long-term infrastructure projects to stimulate growth and create jobs.
 

"These bonds are seeing strong demand from insurance companies and provident funds, as it allows them diversification and meets their need for increasing portfolio duration," Ray said.

The strong demand has also helped reduce the spread sought by investors over government securities, he added.

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