Punjab & Sind Bank, a state-owned institution, is set to raise Rs 3,000 crore through the issuance of 10-year infrastructure bonds, targeting the domestic capital market in mid-December. The bond issue, which has a base size of Rs 5 billion and a green-shoe option of Rs 25 billion, is rated ‘AA’ by domestic rating agencies CRISIL and IndiaRatings.

This move comes after Bank of India successfully raised Rs 50 billion via similar bonds earlier this year at a coupon rate of 7.41 percent. In FY25, commercial banks’ infrastructure bond issuances are expected to surpass Rs 1 trillion, almost doubling the total raised in FY24. To date, banks have raised approximately Rs 800 billion in FY25, compared to Rs 51,081 crore in FY24. Notably, State Bank of India has already raised Rs 30,000 crore through 15-year infrastructure bonds.

Infrastructure bonds are increasingly favored by banks as they are exempt from regulatory reserve requirements such as the statutory liquidity ratio (SLR) and cash reserve ratio (CRR). Unlike deposits, which require banks to maintain a significant portion as CRR and invest in securities, funds raised through infrastructure bonds can be fully deployed for lending activities.

The demand for infrastructure bonds is growing, with banks preferring them over high-risk instruments like AT-1 bonds and Tier-2 bonds. While AT-1 bonds feature discretionary coupon payments and loss-absorption mechanisms, Tier-2 bonds are less risky with fixed maturities and mandatory coupon payments.