State-owned lenders have accounted for around 77% of banks’s infrastructure bond issuances during 2022-23 to 2024-25, as per a report by ICRA.
According to the report, in comparison to private banks, government banks have more stable deposits and larger room to fund infra projects. Private banks are usually unwilling to fund long-term infrastructure projects, a banking official said, adding that small and mid-sized private banks do not have continuous lending base, and they cannot simply raise funds which cater to a particular need, limiting their presence in the infra space.
Despite high chances of the Reserve Bank of India implementing the draft guidelines on project finance in two-three months, issuances of infra bonds are expected to remain robust. Towards the end of the current financial year, infrastructure bond issuances are likely to be around two-thirds of total bond issuances of banks.
The RBI’s draft norms on project finance require banks to set aside 5% as provisions for loans given for infrastructure and real estate projects.
“During FY2015 to FY2022, public sector banks (PSBs) had a negligible share in infrastructure bond issuances. However, with improved capital position, tight funding position and sizable infrastructure loan book, the PSBs became dominant in issuance of infrastructure bonds. The trend is expected to continue through FY2025, with the PSBs likely to account for 82-85% of the bank bond issuances and infrastructure bonds are expected to account for more than 2/3rd share,” said Sachin Sachdeva, vice president and sector head- financial sector ratings, ICRA.
The demand for infra bonds remained firm due to rising loan demand and sluggish bank deposit growth. These bonds are more attractive as funds raised via infra bonds are exempted from regulatory reserve requirements such as cash reserve ratio and statutory liquidity ratio. Moreover, banks can lend the entire amount, thus boosting their lending capacity, market participants said.
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.
As of September 4, Axis Bank had raised Rs 3,925 crore through infrastructure bonds with a coupon of 7.45%. Meanwhile, ICICI Bank raised Rs 3,000 crore through 10-year infrastructure bonds.