MUMBAI: Bond issuances by banks are expected to touch a new high of Rs 1.2-1.3 trillion this fiscal, surpassing the earlier peak of Rs 1.1 trillion in FY23. The issuances will be led by public sector banks, which are expected to command a lion’s share of 82–85 percent and be dominated by infrastructure bonds.
Banks are resorting to bond issuances as deposit growth has for long been lagging credit growth, even as the share of debt in total liabilities remains below the pre-Covid levels. And state-run banks lead in this because of their more stable and granular depositor bases, which give them more wherewithals to provide long-term funding.
Bank loans to the infrastructure sector are estimated at Rs 13-14 trillion as of June 30, 2024, of which 75 percent are with state-run lenders. Icra Ratings expects banks’ bond issuances to reach an all-time high of Rs 1.2-1.3 trillion this fiscal, surpassing the earlier peak of Rs 1.1 trillion in FY23 and Rs 1 trillion in FY24.
Tight liquidity conditions and credit growth continuously surpassing deposit growth have necessitated fund raising from alternate sources, the agency said in a report Tuesday.
So far this fiscal, banks’ total bond issuances stood at Rs 76,700 crore, registering an annualised growth of 225 percent, or 75 percent of the total issuances in FY24.
According to the agency, bond sales by state-run banks are rising as private banks are focused on reducing their credit-to-deposit ratio.
Additionally, continued government focus on infra spending, availability of sizeable infra loan books, and strong demand from insurance companies and provident funds for long term issuances support such bond sales.
“During FY15 to FY22, public sector banks had a negligible share in infra bond issuances. However, with improved capital position, tight funding position, and a sizeable infrastructure loan book, they became dominant in this and accounted for 77 percent of banks’ infra-bond issuances since FY23 through FY25 so far.
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