Banks’ bond issuances could touch an all-time high in FY25 as they are increasingly tapping this route to bridge the gap between credit and deposit growth.
ICRA expects banks’ bond issuance to touch an all-time high of ₹1.2-1.3 lakh crore in FY25, surpassing the earlier high of ₹1.1 lakh crore in FY23 (₹1 lakh crore in FY24) even as tight liquidity conditions and credit growth continuously surpassing deposit growth necessitate fund raising by banks from alternative sources.
For FY25 (Year-To-Date), banks’ total bond issuances were ₹76,700 crore, registering a year-on-year (YoY) growth of 225 per cent and reached 75 per cent of the total issuances done in FY24, per the rating agency’s assessment.
ICRA noted that with private banks focusing on reducing their credit-to-deposit ratio, the fund-raising through bonds is largely being dominated by public sector banks (PSBs) this year.
Sachin Sachdeva, Vice-President & Sector Head – Financial Sector Ratings, ICRA, said: “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).”
He expects the trend to continue through FY25, with the PSBs likely to account for 82-85 per cent of the bank bond issuances in FY25 and infrastructure bonds expected to account for more than 2/3rd share.
Long-term capital
Ajay Manglunia, MD & Head, Investment Grade Group, JM Financial, said: “Banks need resources. They need long-term capital. With deposit rates not moving up as per their expectations, savers are deploying money in better yielding assets – IPOs, secondary market, gold, etc.
“In such a situation, infrastructure bond issuances are advantageous as Banks, especially PSBs, are getting long-term money at an interest rate, of say 7.50 per cent, which is lower than deposit rates.”
He observed that supporting the infrastructure sector is the need of the hour. Moreover, the proceeds from such issuances can be fully deployed as they are not subject to statutory pre-emption. This is a win-win for the issuers as well as the investors such as pension funds and insurance companies.
Given that SBI alone has raised ₹20,000 crore via infrastructure bonds and ₹15,000 crore via Basel III compliant Tier-2 bond in FY25 so far, Manglunia expects bonds issuances by banks to touch about ₹1.50 lakh crore.