Slower deposit growth pushing banks to raise funds from bonds, says ICRA report

The slower deposit growth will push banks to mop-up up to ₹1.3 lakh crore from bond issuances in FY25, a report said on Tuesday.

The bond issuances, coming amidst a continuing wedge between deposit and credit growth, will come between ₹1.2-1.3 lakh crore and will be the highest ever for the system, the report said.

Nearly 85 percent of the bond issuances will be by public sector banks, the report by domestic rating agency ICRA said, adding that the higher appetite for infra bonds among such lenders will drive the market.

"Tight liquidity conditions and credit growth continuously surpassing deposit growth has necessitated fundraising by banks from alternate sources," the agency said.

Banks had raised ₹1 lakh crore from the bond issuances avenue in FY24, while the previous all-time high was reached in FY23 at ₹1.1 lakh crore.

With the mid-fiscal year mark approaching, the report said banks have already raised ₹76,700 crore from bonds till now, which is an over 225 percent growth over the resources mobilised during the same period in FY24.

As private banks are focusing on reducing their credit-to-deposit ratio, fundraising through bonds is largely being dominated by public banks this year, the agency said.

Its head for financial sector ratings Sachin Sachdeva said raising money from bonds will optically worsen the CD ratio for private sector banks, while the public sector banks will continue to pursue growth through infrastructure bonds, given the ample headroom available.

It said banks' advances to the infrastructure sector are estimated at ₹13-14 lakh crore as on June 30, 2024, of which the PSBs have a lion's share of around 75 percent.

Infra-bond issuances have seen higher volumes due to the government of India's focus on infrastructure spending, availability of a sizable infrastructure loan book that is eligible to be funded through this instrument and strong demand from insurance companies and provident funds for long-term issuances, it said.