Indian banks are poised to raise a Rs 40,000 crore through infrastructure bonds during July and August, setting the stage for a record high for a consecutive second year.
If successful, the funds accumulated through these bonds in the first five months of the current fiscal will exceed the Rs 54,400 crore raised in the fiscal year 2023/24.
The tone was set by the State Bank of India, which set a new benchmark by raising Rs 10,000 crore at a coupon rate of 7.36%, the lowest ever for its infrastructure bonds. This rate is just 21 basis points above the yield on comparable government securities, signalling strong market confidence. Major institutional investors, including Life Insurance Corporation of India, provident funds, pension funds, mutual funds, and corporates, showed significant interest in the offering.
ICICI Bank raised Rs 3,000 crore through a 10-year bond sale on Friday, securing long-term funds for infrastructure financing at a coupon rate of 7.53%.
These successful issuances have set the stage for other banks to tap into the market. HDFC Bank is preparing to raise up to Rs 15,000 crore, and Canara Bank and Bank of Baroda are likely to follow with their own bond issuance soon, according to reports. Canara Bank and Bank of Baroda, each expected to raise Rs 10,000 crore. Bank of India is projected to raise Rs 5,000 crore.
Why the fundraise?
The issuance of infrastructure bonds gained momentum last year and continues to thrive due to the widening gap between credit demand and deposit growth. The demand for these funds is driven by increased government spending on infrastructure and a surge in investments in sectors such as steel, roads, and renewable energy.
The growing investor appetite for long-duration infrastructure bonds is likely to encourage further issuances in the coming months.
According to the interim Budget announced in February, the central government plans to invest over Rs 11 lakh crore in long-term infrastructure projects this fiscal year to stimulate economic growth and create jobs.
These bonds are in high demand, particularly from insurance companies and provident funds, as they offer diversification and help meet the need for increasing portfolio duration. The robust demand has also contributed to reducing the spread sought by investors over government securities.
