Updated December 19th, 2023 at 18:39 IST
Lenders double infrastructure bond funds amid govt's long-term project boost
Banks, led by HDFC, raised Rs 584 billion in 2023, a significant jump from the Rs 296 billion in 2022, through 10-year bonds with a 7.71% interest rate.
The country's financial institutions have doubled their fundraising through longer-term infrastructure bonds this year, capitalising on increased government spending on extended projects. According to Reuters data, banks raised over Rs 584 billion ($7.04 billion) in 2023, a significant jump from the Rs 296 billion raised in 2022. HDFC Bank, the country's largest private lender, recently secured Rs 74.25 billion on 10-year bonds with a 7.71 per cent interest rate.
Other major banks, including Axis Bank and ICICI Bank, are expected to raise Rs 50 billion each by the end of the month. State-run institutions NABARD and NaBFID also plan to raise Rs 100 billion each through similar offerings later this week. State-owned lenders have already raised Rs 447.18 billion, while private players secured Rs 137.15 billion through infrastructure bonds.
The surge in fundraising is attributed to the government's commitment to spending Rs 10 trillion in the current fiscal year on long-term projects to stimulate growth. Increased activity in sectors such as roads, thermal power, renewables, and cement has created lending opportunities. Arnab Choudhury, Head of Debt Capital Markets at SBI Capital Markets, highlighted that the construction sector is experiencing selective spending, and he anticipates robust fundraising through infrastructure bonds into the next year.
Infrastructure bond issuances have garnered active participation from long-term investors such as retirement funds and insurance companies, resulting in funds being raised at lower spreads.
Mataprasad Pandey, Vice President, Arete Capital, highlights the spreads, or additional interest sought by investors, which have ranged from 20-40 basis points over comparable government bonds. These bonds meet the investment needs in the 7-10 year range for insurance companies, according to Rahul Bhuskute, Chief Investment Officer at Bharti AXA Life Insurance, who expects continued bond issuances with strong demand from insurance companies and pension funds.
(With Reuters Inputs)
Published December 19th, 2023 at 18:39 IST