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19 Nov 2024
Banks have raised over ₹50,000 crore in the first five and a half months of FY25 through infrastructure bonds, as deposit growth has remained sluggish while credit demand stays strong. Major banks such as State Bank of India (SBI), Bank of Baroda, ICICI Bank, Canara Bank, Bank of India, Indian Bank, and Bank of Maharashtra have collectively raised ₹53,811 crore this fiscal to fund long-term infrastructure projects.
Sujit Kumar, chief economist at the National Bank for Financing Infrastructure and Development (NaBFID), highlighted that raising funds through infrastructure bonds is more cost-effective for banks, as compared to certificates of deposit (CDs), because infra bonds do not require banks to maintain a cash reserve ratio (CRR). This makes them a more attractive option for securing funds. For instance, SBI raised ₹20,000 crore in two tranches, while Bank of Baroda and Canara Bank each secured ₹10,000 crore. NaBFID also raised ₹8,911 crore via infra bonds.
These bonds typically have a tenure of at least seven years, and banks use the proceeds to finance long-term infrastructure projects. Unlike CDs and retail deposits, which involve CRR and statutory liquidity ratio (SLR) requirements that make them costlier for banks, infrastructure bonds allow banks to fully utilize the raised funds without these regulatory hurdles.
The government's focus on infrastructure development has encouraged banks to support funding in sectors such as steel, roads, and renewable energy. According to a public sector bank's treasury head, the recent government initiatives have created strong lending opportunities in infrastructure.
RBI data shows that while deposits grew 11.7% in the quarter ending June, credit growth outpaced it at 15%. Falling bond yields over the past year have also made infra bonds a favorable option for banks, allowing them to secure funding at lower costs in the current market conditions.
Issuances of infrastructure bonds are expected to continue into the second half of FY25, with Bank of Maharashtra approving plans to raise up to ₹10,000 crore through infra bonds either via public offering or private placement.
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