Punjab & Sind Bank eyeing Rs 3,000 crore through infrastructure bonds

State-owned Punjab & Sind Bank is planning to tap the domestic capital market in the second or third week of December to raise Rs 3,000 crore through 10-year infrastructure bonds, according to multiple sources aware of the development.

 

The bonds, rated ‘AA’ by domestic rating agencies CRISIL and IndiaRatings, have a base size of Rs 500 crore and a green-shoe option of Rs 2,500 crore.

 

Last week, Bank of India (BoI) raised Rs 5,000 crore through 10-year infrastructure bonds at a coupon rate of 7.41 per cent.

 

Commercial banks’ infrastructure bond issuances in FY25 are projected to exceed Rs 1 trillion, almost double the amount raised in FY24. Banks have so far raised around Rs 80,000 crore via such bonds in this financial year, compared to Rs 51,081 crore in FY24. In FY25, State Bank of India (SBI) has raised Rs 30,000 crore through 15-year infrastructure bonds.

 

 

Infrastructure bonds are advantageous for banks as they are exempt from regulatory reserve requirements such as the statutory liquidity ratio (SLR) and cash reserve ratio (CRR).

 

Unlike funds raised through deposits—where banks must maintain 4.5 per cent of the amount as CRR with the Reserve Bank of India (RBI) and invest approximately 18 per cent in securities to meet SLR obligations—infrastructure bond proceeds can be fully deployed for lending activities.

 

Banks have been preferring infrastructure bonds over AT-1 and Tier-2 bonds, as they are better priced than the latter. AT-1 bonds are perpetual, high-risk instruments classified as Tier-1 capital, featuring discretionary coupon payments and loss absorption mechanisms such as write-downs or equity conversion during financial distress. On the other hand, Tier-2 bonds have fixed maturities, mandatory coupon payments, and no explicit loss absorption triggers, making them relatively less risky. Additionally, AT-1 bonds rank lower than Tier-2 bonds in the liquidation hierarchy.