Slower deposit growth is expected to lead banks to raise up to ₹1.3 lakh crore through bond issuances in FY25, according to a report released on Tuesday.
This surge in bond issuances, which will occur amid a persistent gap between deposit and credit growth, is projected to reach between ₹1.2 lakh crore and ₹1.3 lakh crore, marking the highest level for the banking system to date.
The report, published by domestic rating agency Icra, indicates that nearly 85% of these bond issuances will be made by public sector banks, driven by their increased appetite for infrastructure bonds.
"Tight liquidity conditions and credit growth consistently outpacing deposit growth have necessitated banks to seek funds from alternative sources," the agency stated.
In FY24, banks had raised ₹1 lakh crore through bond issuances, while the previous record was set in FY23 at ₹1.1 lakh crore. As the mid-fiscal year approaches, the report reveals that banks have already raised ₹76,700 crore through bonds, representing over 225% growth compared to the same period in FY24.
With private banks focusing on lowering their credit-to-deposit ratios, public sector banks are expected to dominate fundraising through bonds this year.
Sachin Sachdeva, head of financial sector ratings at Icra, noted that raising funds through bonds may negatively impact the credit-to-deposit ratio for private banks. In contrast, public sector banks are likely to continue pursuing growth through infrastructure bonds, given the ample capacity available.
As of June 30, 2024, banks' advances to the infrastructure sector are estimated at ₹13-14 lakh crore, with public sector banks holding approximately 75% of this share.
The report highlights that infrastructure bond issuances have surged due to the Indian government's emphasis on infrastructure spending, a substantial eligible loan book for funding through these instruments, and strong demand from insurance companies and provident funds for long-term issuances.
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