Bank bond issuance likely to touch Rs 1.2 trn level in FY25 : Report

Infrastructure to command about 66% share in issuance, according to ICRA

Banks' borrowings through bonds is expected to reach Rs 1.2-1.3 trillion in this financial year (FY25) amid tight liquidity conditions and credit outpacing deposit growth, according to rating agency ICRA.

Bond issuances in FY25 may surpass the earlier peak of Rs 1.1 trillion in FY23, said the agency in a statement. Banks issued bonds worth Rs 1 trillion in FY24. Public sector banks are likely to account for 82-85 per cent of bank bond issuances in FY25. Infrastructure bonds are expected to account for more than two-thirds of the total share.

Banks have issued bonds worth Rs 767 billion in FY25 yet, registering a year-on-year growth of 225 per cent and reaching 75 per cent of the total issuances in FY24.

 

With private banks working to reduce their credit-to-deposit ratio, fund-raising through bonds is dominated by public sector lenders this year.

“During FY2015 to FY2022, public sector banks had a negligible share in infrastructure bond issuances. However, with improved capital position, tight funding conditions, and a sizable infrastructure loan book, the public sector banks became dominant in the issuance of infrastructure bonds. They accounted for 77 per cent of banks’ infrastructure bond issuances in FY23-FY25 (year to date)," said Sachin Sachdeva, vice-president, ICRA.

Once banks' bond issuances were dominated by Tier-I and Tier-II instruments to help boost capitalisation metrics, particularly when lenders faced low profitability amid asset quality challenges. However, since FY23, as profitability improved, issuances of infrastructure bonds have gained traction.

ICRA said bond issuance is supported by the Indian government's focus on infrastructure spending, the availability of a sizable infrastructure loan book, and strong demand from insurance companies and provident funds for long-term issuances. While infrastructure bonds are required to have a minimum tenure of seven years as per regulations, given investor preference, they have been issued for relatively longer tenures of 10 and even 15 years.

Advances to the infrastructure sector as of June 30 are estimated at Rs 13-14 trillion, of which public sector banks have a share of around 75 per cent. An analysis of 13 large banks – public sector and private – showed they had infrastructure bonds outstanding at around Rs 2.2 trillion as of August 31. Their infrastructure loan book stood at around Rs 11 trillion as of June 30, according to ICRA.