Banks ramp up infrastructure bond fundraising, doubling amount amid capex surge

Financial institutions have witnessed a twofold increase in funds raised through longer-term infrastructure bonds this year, propelled by augmented federal government spending on extended projects. 

Banks amassed over Rs 58,400 crore ($7.04 billion) through infrastructure bonds in 2023, compared to the Rs 29,600 crore raised in 2022, according to Reuters data.

The country’s largest private lender, HDFC Bank, secured Rs 7,425 crore through 10-year bonds at an interest rate of 7.71 per cent, on Monday. 

The surge in fundraising is linked to rising opportunities in lending created by the government's substantial spending on long-term initiatives, targeting an expenditure of Rs 10 lakh crore in the current fiscal year to spur growth.

Axis Bank, ICICI Bank, NABARD, and NaBFID are also set to raise funds through infrastructure bonds in the coming weeks, reflecting the robust trend expected to persist into the next year. This heightened fundraising activity has drawn substantial participation from long-term investors, including retirement funds and insurance companies, resulting in lower spreads of 20-40 basis points over comparable government bonds. 

The buoyancy in infrastructure bond issuances is anticipated to continue, meeting the investment needs of insurance companies in the 7-10 year maturity bracket. 

Analysts foresee a continued strong demand from insurance companies and pension funds, driving further issuances by banks.

(With Reuters Inputs)