KOCHI: Federal Bank, the largest Kerala-based bank, has announced its plan to raise Rs1,500 crore through its first-ever infrastructure bond issuance.
According to a recent bank statement, the bond issuance has received board approval and will be listed on the National Stock Exchange (NSE).
While specific details, including the coupon rate and bond tenure, will be finalised at the time of allotment, this issuance marks a significant milestone – not only for Federal Bank but for Kerala’s banking sector, as it would represent the first infrastructure bond issued by any Kerala-based bank.
Krishnan Venkat Subramanian, known as KVS Manian, the bank’s MD and CEO who assumed leadership less than a month ago, commented that the proceeds from this bond would support the bank’s infrastructure-related financing needs.
Infrastructure bonds provide an opportunity for banks to fund new projects while refinancing existing ones that have already received bank financing, thus enhancing the bank’s support for critical infrastructure projects,” head of a local bank told businessbenchmark.news.
More banks
Federal Bank’s initiative aligns with a trend observed in Indian banking over recent years, where many banks have raised funds via infrastructure bonds to meet the demand for long-term project financing.
Indian Bank, a Chennai-based public sector bank, recently issued Rs5,000 crore in long-term infrastructure bonds through a private placement that saw robust investor interest, with demand at 3.19 times the total issue size.
Major players like State Bank of India (SBI), HDFC Bank, and ICICI Bank have also been active in this space. SBI, for example, raised over Rs9,700 crore through 15-year infrastructure bonds at a rate of 7.7 per cent in early 2023, while ICICI Bank issued a substantial amount in December 2022, aiming to finance energy and transportation projects.
Axis Bank and other major institutions are also increasingly relying on this financing route, driven by strong investor demand and favorable government policies aimed at boosting infrastructure financing.
Benefits of Infra bonds
Issuing infrastructure bonds provides banks with several strategic advantages, particularly when lending to sectors such as roads, power, and renewable energy.
These bonds help meet the credit demand in these sectors while offering regulatory exemptions that traditional deposits do not. Specifically, funds raised through infrastructure bonds are exempt from mandatory requirements like the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
This exemption reduces the banks’ funding costs and enables higher credit growth, especially important amid the current slowdown in deposit growth.
