Indian Overseas Bank (IOB) has received approval from its board to raise ₹10,000 crore by issuing long-term infrastructure bonds. The bank plans to issue these bonds in multiple phases, either in the current financial year or the next, depending on funding requirements. The raised capital will be used for financing and refinancing infrastructure projects and affordable housing, according to the bank’s regulatory filing on Wednesday.
Why Are Banks Raising Funds Through Infrastructure Bonds?
Many public sector banks have recently turned to infrastructure bonds as a way to secure long-term funding. These bonds help banks support credit growth while managing competition for deposits. In February 2024, Bank of Maharashtra raised ₹1,612 crore, and Punjab National Bank raised ₹2,950 crore through similar long-term infrastructure bonds.
Rules for Using Infrastructure Bonds
According to Reserve Bank of India (RBI) guidelines, funds raised through these bonds can only be used for lending to infrastructure sectors and affordable housing. These bonds must have a minimum maturity of seven years.
Benefits of Long-Term Infrastructure Bonds
Long-term bonds are an attractive funding option for banks because they are exempt from certain regulatory reserve requirements. Unlike regular deposits, these bonds do not require banks to maintain a Cash Reserve Ratio (CRR) or a Statutory Liquidity Ratio (SLR), making them a cost-effective way to raise capital.
By raising ₹10,000 crore through these bonds, IOB aims to strengthen its financial position and support long-term economic growth.
