Indian banks are swiftly moving to raise infrastructure bonds with the State Bank of India and ICICI Bank raising such bonds at a time when lenders face increased pressure to mobilize funds due to credit growth outpacing deposit growth.
SBI 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 is expected to follow with its own bond issuance soon, according to reports.
This trend underscores a growing appetite among investors for long-term debt instruments amid robust demand for infrastructure funding.
Infrastructure bonds are a strategic tool for banks and financial institutions to finance long-term infrastructure projects, with a minimum maturity period of seven years. These bonds are typically cheaper for banks to issue, as they benefit from regulatory exemptions such as exclusion from mandatory statutory liquidity ratio and cash reserve ratio requirements. The funds raised through these bonds are specifically earmarked for investments in infrastructure and affordable housing sectors.
Credit growth
Indian banks’ loans rose 19.2% in the two weeks to June 14 from a year earlier, while deposits rose 12.6%, the Reserve Bank of India’s weekly statistical supplement showed on Friday.
Outstanding loans fell Rs 71,602 crore ($8.59 billion) to Rs 167.11 lakh crore in the two weeks to June 14.
Non-food credit fell Rs 68,266 billion to Rs 166.74 lakh crore, while food credit fell Rs 3,336 crore to Rs 36,923 crore.
Bank deposits fell Rs 1.84 lakh crore to Rs 209.03 lakh crore in the two weeks to June 14.
