Indian Bank To Raise ₹5,000 Crore Via Infrastructure Bonds Amid Rising Funding Costs

Recently, the state-run lender Indian Bank announced the issuance of seven-year infrastructure bonds worth ₹50 billion, in an attempt to strengthen credit growth and meet capital requirements. The move came to light amid rising funding costs and tight deposit conditions. The issuance is expected to test market demand and pricing benchmarks. Will this signal a major shift in how Indian banks fund growth in a high-rate environment?

Key Details Of The Bond Issue

As per the sources, the bank is already in conversation with institutional investors, including one of the active buyers of the bank’s issuance, the Employee Provident Fund Organisation. Further, the reports suggested that the expected cutoff yield for the bonds is between 7.11% and 7.24% with AAA ratings from CARE Ratings and CRISIL.

Why Is Indian Bank Opting For Infrastructure Bonds Now?

The decision to raise funds via infrastructure bonds is driven by rising deposit costs and weak deposit growth. Bulk deposit rates have increased significantly, making short-term instruments such as certificates of deposit more expensive.

Moreover, issuing infrastructure bonds also provides regulatory advantages. For instance, they are exempt from certain reserve requirements like CRR and SLR. This exemption will optimise the bank’s overall cost of funds and balance sheet.

The issuance aligns with a broader trend among public sector banks shifting towards longer-tenor funding to sustain lending momentum in infrastructure and corporate segments.

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How Does This Fit Into The Broader Banking And Bond Market Trend?

Indian Bank’s move highlights the shift in the resurgence of infrastructure bond issuances by Indian lenders.

In March alone, multiple public sector banks have tapped or planned to tap the bond market:

• Bank of Baroda raised ₹100 billion through seven-year bonds at around 7.10%

• Union Bank of India is preparing a ₹75 billion issuance

• State Bank of India is also expected to raise up to ₹100 billion through similar instruments

Despite this activity, total infrastructure bond fundraising by banks in FY26 remains significantly lower at around ₹250 billion compared to ₹892 billion in the previous fiscal year.

Sources

Economic Times

Reuters