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Indian lenders doubled the amount of funds raised via longer-term infrastructure bonds this year, as increased federal government spending on long-term projects created lending opportunities.

Banks raised over 584 billion rupees ($7.04 billion) via infrastructure bonds in 2023 compared to 296 billion rupees raised in 2022, data compiled by Reuters showed.

India's largest private lender HDFC Bank raised 74.25 billion rupees through 10-year bonds at an interest rate of 7.71% on Monday.

The bank did not respond to a Reuters email seeking comment.

Peers Axis Bank and ICICI Bank are likely to raise 50 billion rupees each before the end of the month, while state-run institutional lenders NABARD and NaBFID will look to raise 100 billion rupees each through such offerings later this week, merchant bankers said.

State-run lenders have raised 447.18 billion rupees via such papers, while private players have raised 137.15 billion rupees.

The federal government aims to spend 10 trillion rupees this fiscal year on long-term projects to boost growth. Spending by states has also picked up.

Sectors such as roads, thermal power, renewables and cement are seeing a pick-up in activity, leading to lending opportunities, said Arnab Choudhury, head of debt capital markets at SBI Capital Markets.

The construction sector is also selectively seeing more spending, said Choudhary, who expects fundraising via infrastructure bonds to remain strong into next year.

Lender Tenor in Month Quantum in Coupon

years billion rupees in %

SBI 15 Jan 97.18 7.70

Kotak Mahindra Bank 7 Mar 3 7.63

Kotak Mahindra Bank 7 Jun 19.9 7.55

SBI 15 Jul 100 7.54

SBI 15 Sep 100 7.49

Canara Bank 10 Sep 50 7.54

ICICI Bank 10 Sep 40 7.57

Canara Bank 10 Nov 50 7.68

Bank of Baroda 10 Nov 50 7.68

HDFC Bank 10 Dec 74.25 7.71

Infrastructure bond issues have seen active participation from long-term investors such as retirement funds and insurance companies, allowing for such funds to be raised at lower spreads, said Mataprasad Pandey, vice president at financial advisory firm Arete Capital.

The spreads, or additional interest sought by investors, has ranged from 20-40 basis points over comparative government bonds.

Infrastructure bonds fulfil the need for investments in the 7-10 year bucket for insurance companies, Rahul Bhuskute, chief investment officer at Bharti AXA Life Insurance, said.

"We expect more infrastructure bond issuances by banks with strong demand from insurance companies and pension funds."

($1 = 82.9975 Indian rupees)