Banks mopped up 75 per cent more resources via infrastructure bond issuances in the current financial year so far in the backdrop of deposit growth lagging credit growth and the cost of funding via this route being as competitive as term deposits.
They collectively raised ₹89,588 crore via infrastructure (infra) bond issuances in the first 11 months of the current financial year against ₹51,081 crore in the year ago period.
Public sector banks (PSBs) accounted for 90 per cent of the total infra bond issuances in the aforementioned period against 51 per cent in the year ago period. Private sector banks accounted for the rest.
While there has been a sharp uptick in infra bond issuances, tier-2 and additional tier (AT)-1 bonds issuances by banks declined. Tier-2 bond issuances were lower at ₹33,100 crore ( ₹34,329 crore). AT-1 bond issuances more than halved to ₹8,000 crore ( ₹17,516 crore).
Clear shift
Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap , observed that the sharp rise in bank infrastructure bond issuances this financial year, significantly outpacing tier 2 and AT-1 bonds, reflects a clear shift in investor preference. Public sector banks have taken the lead, and going by the current trajectory, total issuances could comfortably exceed ₹1 lakh crore by the fiscal year-end.
“Institutional investors are gravitating towards infrastructure bonds due to their senior unsecured status, making them a safer bet compared to subordinated tier 2 and AT-1 bonds. The regulatory write-offs of Yes Bank’s AT-1 bonds and Lakshmi Vilas Bank’s tier-2 bonds have reinforced investor caution, leading to a preference for top-rated, low-risk bank instruments.
“AT-1 bonds, once a sought-after high-yield investment option, are out of favour this year due to risk concerns and changes in tax treatment for Debt Mutual Funds, leading to subdued issuance as investors demand higher spreads to compensate for the added risk premium,” said Venkatakrishnan.
Conversely, infrastructure bonds have found strong demand from long-term investors such as pension funds, insurance companies, and provident funds, who are willing to pay tighter spreads for stable, long-duration assets.
“The frequent over subscription of these issuances allows banks to optimise pricing while ensuring consistent demand. The added regulatory advantage—exemption from CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements—further strengthens their appeal as a capital-efficient funding tool,” he said.
Suresh Darak. Founder, Bondbazaar Securities, emphasised that there is a lot of scope for banks to raise funds via infra bonds as out of their total infra credit portfolio of about ₹13 lakh crore, they garnered only about ₹2.5-3.0 lakh crore via these bonds so far.
He noted that when banks pay 7.0-7.25 per cent on term deposits (of three years), the actual cost incurred by them is higher if one takes into account statutory pre-emptions such as CRR and SLR. But when banks raise monies via 10-15 year infra bonds, while they may pay higher interest rate – 7.50-7.60 per cent, these resources are not subject to statutory pre-emptions.
Darak said funds mobilised via infra bonds help banks address asset-liability mismatches. Moreover, as long-term funds raised via this route are not subject to CRR and SLR, the cost of funds is more or less similar to term deposits. He expects infra bonds issuances to top the ₹1.50 lakh crore mark in FY26.
