New Delhi (Economy India): State-owned Bank of India (BoI) has successfully raised ₹10,000 crore through long-term infrastructure bonds at a coupon rate of 7.23 per cent per annum, underscoring strong investor appetite for high-quality public sector bank debt and highlighting the growing role of bond markets in financing India’s infrastructure-led growth strategy.
The bond issue, which received bids worth ₹15,305 crore, was oversubscribed nearly 1.5 times, allowing the bank to fully exercise its greenshoe option. Market participants see the fundraise as a positive signal for the broader banking sector, particularly at a time when credit demand is rising and banks are under pressure to manage asset-liability mismatches.
Inside the Bond Issue: Key Details
Bank of India’s infrastructure bond issuance was structured to raise long-term, stable capital aligned with infrastructure financing needs.
Key Highlights
- Total amount raised: ₹10,000 crore
- Base issue size: ₹5,000 crore
- Greenshoe option: ₹5,000 crore (fully exercised)
- Coupon rate: 7.23% per annum
- Total bids received: 83 bids
- Total demand: ₹15,305 crore
- Bids accepted: 37 bids
The strong demand allowed BoI to raise funds at a competitive cost, reflecting investor confidence in the bank’s credit profile and the improving health of PSU banks.
Why Infrastructure Bonds Matter for Banks
Infrastructure bonds are a critical funding instrument for banks, particularly public sector lenders with a mandate to support long-gestation projects.
Key Advantages
- Longer maturity: Aligns funding with infrastructure loan tenures
- CRR and SLR exemptions: Frees up deployable capital
- Improved ALM profile: Reduces asset-liability mismatch risks
- Lower refinancing pressure: Enhances balance sheet stability
For Bank of India, the issuance provides durable capital that can be deployed into infrastructure sectors such as roads, power, renewable energy, railways, urban infrastructure and logistics.
Investor Appetite: What Drove the Oversubscription?
The robust response to the bond issue highlights several structural and cyclical factors:
1. Improved PSU Bank Fundamentals
Over the past few years, public sector banks have seen:
- Sharp reduction in NPAs
- Improved capital adequacy
- Better profitability metrics
- Strengthened governance and risk controls
These improvements have significantly enhanced investor confidence.
2. Attractive Risk-Return Profile
At a 7.23% coupon, BoI’s infra bonds offered:
- Higher yields compared to similar-tenure government securities
- Lower credit risk relative to corporate bonds
- Stability backed by sovereign ownership
3. Demand from Institutional Investors
Insurance companies, pension funds, mutual funds and long-term investors are increasingly seeking high-quality, long-duration assets, making PSU bank infra bonds an attractive option.
Context: Infrastructure Financing at the Core of Growth
India’s economic growth strategy is increasingly anchored around public and private infrastructure investment.
Government Push
- National Infrastructure Pipeline (NIP)
- Gati Shakti initiative
- Large-scale spending on roads, railways, ports and power
- Rapid expansion of renewable energy capacity
Banks like Bank of India play a crucial role in financing these projects, often alongside institutions such as REC, PFC, NIIF and multilateral lenders.
PSU Banks and Bond Markets: A Structural Shift
Traditionally, Indian banks relied heavily on deposits for funding. However, rising credit demand and regulatory requirements have pushed banks to diversify funding sources.
Growing Use of Bonds
- Infrastructure bonds
- Tier-II bonds
- AT-1 instruments
This shift reduces overdependence on deposits and provides flexibility in managing funding costs and maturities.
Bank of India’s bond issuance fits into this broader trend of market-based funding.
Impact on Bank of India’s Balance Sheet
Capital and Liquidity
The ₹10,000 crore infusion strengthens:
- Long-term funding base
- Liquidity profile
- Ability to support large-ticket infrastructure loans
Credit Growth Support
With credit demand remaining robust—particularly in infrastructure, MSMEs and corporate lending—the funds will enable BoI to sustain growth without straining its balance sheet.
Margin Implications
While bond funding is typically more expensive than low-cost deposits, infra bonds offer regulatory benefits that improve overall cost efficiency.
Bond Market Implications
Market participants say the successful issuance could:
- Encourage other PSU banks to tap the bond market
- Support development of India’s corporate bond market
- Deepen long-term debt markets
Analysts note that strong demand for PSU bank bonds also reflects limited supply of high-quality long-duration instruments in the Indian market.
Comparison with Other PSU Bank Issuances
In recent months, several public sector banks have raised funds through bond issuances, benefiting from:
- Stable interest rate expectations
- Strong liquidity conditions
- Improved investor sentiment
Bank of India’s 7.23% coupon is seen as competitive compared to peers, reflecting efficient pricing and strong demand.
Regulatory and Policy Backdrop
The RBI has encouraged banks to:
- Strengthen balance sheets
- Improve ALM management
- Diversify funding sources
Infrastructure bonds align well with these objectives, while also supporting national development priorities.
Additionally, the RBI’s recent liquidity measures—such as OMOs and forex swaps—have supported stable bond market conditions.
Risks and Considerations
Despite the positive outlook, some challenges remain:
Interest Rate Risk
If global or domestic rates rise sharply, future bond issuances could become more expensive.
Execution Risk
Effective deployment of funds into viable infrastructure projects is critical to ensure asset quality.
Sectoral Stress
Infrastructure projects can face delays due to land acquisition, regulatory clearances and execution hurdles.
However, analysts believe improved project appraisal and risk management frameworks have mitigated these risks to a large extent.
What This Means for Investors
For investors, PSU bank infrastructure bonds offer:
- Stable returns
- Relatively low credit risk
- Exposure to India’s infrastructure growth story
As India’s bond market matures, such instruments are likely to gain further prominence in institutional portfolios.
Broader Economic Significance
Bank of India’s successful bond issuance highlights:
- Confidence in India’s banking sector
- Strong alignment between financial markets and infrastructure goals
- Growing sophistication of domestic debt markets
It also reinforces the role of public sector banks as key enablers of India’s capital formation cycle.
A Vote of Confidence in PSU Banking and Infra Growth
The ₹10,000 crore infrastructure bond issuance by Bank of India is more than a routine fundraise. It reflects renewed confidence in PSU banks, the deepening of India’s bond markets, and the central role of banks in financing the country’s infrastructure ambitions.
As credit demand rises and infrastructure spending accelerates, such market-driven funding mechanisms will be critical in ensuring sustainable, long-term growth—both for banks and for the broader economy.
(Economy India)
