In India, infrastructure bonds are instrumental in attracting substantial investments into the nation's development projects. These financial instruments are issued by corporations, financial institutions, or government bodies to raise bonds dedicated to infrastructure development. They enable investors to support critical sectors like transportation, energy, telecommunications, and housing, thereby promoting economic growth and improving public amenities. Infrastructure bonds offer appealing investment prospects with stable returns while contributing significantly to the country's economic progress and sustainability objectives.
"After the election-induced volatility, bond markets have stabilized, making infrastructure bonds an attractive option for HDFC Bank. These instruments offer flexibility in managing statutory liquidity ratio (SLR) and cash reserve ratio (CRR)," disclosed a knowledgeable source.
HDFC Bank is actively exploring the issuance of infrastructure bonds valued between ₹10,000 to ₹15,000 crore. This initiative by India's largest lender, following its merger last year with former parent HDFC, aims to secure long-term capital and fulfill reserve requirements.
Back in April, HDFC Bank announced its intention to raise up to ₹60,000 crore during the current fiscal year through the issuance of different bond types. Infrastructure bonds, with a minimum maturity period of 7 years, were highlighted as exempt from statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements, essential reserves banks must maintain
HDFC Bank's focus on infrastructure bonds coincides with its strategic efforts to manage the increasing portion of deposits allocated as reserves following the merger. This adjustment is crucial as the bank navigates the integration of relatively lower-yielding home loans inherited from HDFC into its balance sheet.
In banking, "SLR" stands for Statutory Liquidity Ratio. It is a requirement set by the central bank (like the Reserve Bank of India in India) that mandates banks to maintain a certain percentage of their net demand and time liabilities (NDTL) in the form of liquid assets such as cash, gold, or other securities. SLR is used by central banks to control credit flow, ensure solvency of commercial banks, and influence monetary policy. Banks need to meet this ratio by investing in approved securities to ensure they have enough liquidity to meet depositor demands.
Additionally, following the merger, the bank did not receive exemptions from the RBI regarding reserve maintenance. Therefore, issuing infrastructure bonds becomes increasingly crucial for capital accumulation. According to a March report by ET, HDFC Bank's request to classify over ₹1 lakh crore of securities issued by the former HDFC as infrastructure bonds was denied by the RBI.
HDFC held over ₹1.20 lakh crore worth of bonds categorized as infrastructure finance instruments. By labeling these bonds as infrastructure assets within the bank, they could potentially offset them against loans for infrastructure and affordable housing within the merged entity, thereby avoiding the need to maintain CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) on these instruments.
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