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Led by public sector banks (PSBs), Indian banks are set to issue all-time high bonds worth Rs 1.2 lakh crore- Rs 1.3 lakh crore in the current fiscal (FY25), surpassing the earlier peak of Rs 1.1 lakh crore in FY23, a report showed on Tuesday. 

PSBs are likely to command a lion’s share at 82-85 per cent of bonds issuances, with infrastructure bonds dominating the segment, according to leading credit rating agency ICRA.

Banks have recently increased fund-raising via bonds, even as the share of borrowings in total liabilities remains below the pre-Covid levels.

Tight liquidity conditions and credit growth continuously surpassing deposit growth has necessitated fund raising by banks from alternate sources.

For FY25 (year to date), banks’ total bond issuances were Rs 767 billion, registering a YoY growth of 225 per cent and reached 75 per cent of the total issuances done in FY24. During FY15 to FY22, PSBs had a negligible share in infrastructure bond issuances.

“However, with improved capital position, tight funding position and sizeable infrastructure loan book, the PSBs became dominant in the issuance of infrastructure bonds and accounted for 77 per cent of banks’ infrastructure bond issuances in FY23-FY25 (YTD),” said Sachin Sachdeva, Vice President and Sector Head–Financial Sector Ratings, ICRA.

The trend is expected to continue through FY2025 with the PSBs likely to account for 82-85 per cent of the bank bond issuances in FY25 and infrastructure bonds are expected to account for more than two-third share, Sachdeva noted.

Additionally, the government’s continued focus towards infrastructural spending, the availability of sizeable infrastructure loan book, which is eligible to be funded through these infrastructure bonds and strong demand from insurance companies and provident funds for long term issuances, support these bond issuances.

While these are required to have a minimum tenor of 7 years as per regulations, however, given the investor preference, they have been issued for relatively longer tenors of even 10 and 15 years, said the report.

Banking sector advances to the infrastructure sector are estimated at Rs 13 lakh crore-14 lakh crore as on June 30, of which the PSBs have a lion’s share of around 75 per cent.

Banks are expected to continue to fund the infrastructure sector growth and infrastructure bonds remain a key tool for raising long-term resources to fund this portfolio, said the report.