Banks have raised more than Rs 50,000 crore in the first five-and-a-half months of the current fiscal by issuing infrastructure bonds as deposit growth had remained slows amid firm credit demand.
State Bank of India, Bank of Baroda, ICICI Bank, Canara Bank, Bank of India, Indian Bank and Bank of Maharashtra have so far raised Rs 53,811 crore in the current fiscal to finance long-term development projects.
“In the current environment, where mobilising deposits has become increasingly challenging for banks, raising funds via infrastructure bonds presents a more cost-effective solution,” Sujit Kumar, chief economist, National Bank for Financing Infrastructure and Development (NaBFID), said. “Unlike funds raised through certificates of deposit (CDs), which require banks to maintain a cash reserve ratio (CRR), infrastructure bonds do not come with this regulatory requirement, making them more attractive and efficient means for banks to secure the necessary funds,” said Kumar.
Among lenders, SBI has raised Rs 20,000 crore in two tranches, while Bank of Baroda and Canara Bank have mopped up Rs 10,000 crore. NaBFID has raised Rs 8,911 crore via infra bonds.
Infrastructure bonds have a tenure of at least seven years and proceeds are utilised by banks to fund long-term infrastructure projects. The CRR and SLR requirements make CDs and retail deposits more expensive for banks because they reduce the portion of funds that can be used for income-generating activities. With infrastructure bonds, banks do not face these regulatory constraints, allowing them to fully utilise the funds raised.
The government’s focus on infrastructure projects has made banks bullish on funding those. Bankers say government spending on infrastructure and increased investment in sectors such as steel, roads and renewable energy are driving demand for funds.
“With the government announcing several new infrastructure projects, we see strong lending opportunities emerging in the sector. This reflects banks’ optimism about the potential growth in infrastructure,” said the head of treasury of a public sector bank.
The latest data from the Reserve Bank of India showed while deposits grew at 11.7% for the quarter ended June, the bank credit rose at 15%. Easing of bond yields has also made issuing infra bonds attractive for banks. “Bond yields have witnessed a significant decline over the last one year and banks do not expect such a fall in coming months. By raising funds now through infrastructure bonds, lenders are able to take advantage of the current market conditions to secure funding at a lower cost,” said Kumar.
Issuances of infra bonds are likely to continue in the second half of FY25. The board of Bank of Maharashtra in its meeting on July 18 approved raising up to Rs 10,000 crore through infrastructure bonds. These bonds will be issued either through a public offering or via private placement.