“Bond markets are now relatively stable after the election-related volatility, and infrastructure bonds are a desirable option for HDFC Bank, as these instruments offer a discount on maintenance of statutory liquidity ratio (SLR) and cash reserve ratio (CRR),” said a source aware of the developments.
An email sent to HDFC Bank for comment on the matter did not elicit a response till the time of publication. In April, HDFC Bank had said it plans to raise up to Rs 60,000 crore by issuing various types of bonds in the current fiscal year. Funds raised through infrastructure bonds, which have a minimum maturity of 7 years, are exempted from the maintenance of SLR and CRR, which are mandatory reserve requirements for banks.
AgenciesThe SLR, which is the portion of deposits that banks must invest in liquid securities such as government bonds, is currently 18%. The CRR, which is kept with the RBI, is 4.5% of net demand and time liabilities, a proxy for deposits.
For HDFC Bank, the move towards infrastructure bonds comes at a time when the lender is smartly trying to set aside a growing portion of its post-merger deposits as reserves, while trying to balance the relatively low-yield home loans it inherited on its balance sheet from HDFC.
The country’s largest bank by market capitalisation has seen its net interest margin shrink in the last few quarters due to the new asset-liability mix. HDFC Bank’s net interest margin stood at 3.44% in FY24, compared to 4% in FY23.
Moreover, with no relaxation from the Reserve Bank post the merger, issuance of infrastructure bonds becomes more important as a means of raising capital. In March, ET reported that the RBI had rejected HDFC Bank’s request seeking permission to classify securities worth over ₹1 lakh crore issued by erstwhile HDFC as infrastructure bonds.
HDFC has bonds worth over ₹1.20 lakh crore classified as infrastructure finance instruments. If these bonds were given the infrastructure tag in the bank, they could be set off against the infrastructure and affordable housing loans of the merged entity without maintaining CRR and SLR.
HDFC alone has affordable housing loans of around Rs 1 lakh crore and this will be fully funded by HDFC.
HDFC Bank last issued infrastructure bonds in March 2024, and raised Rs 2,910 crore through such instruments at a rate of 7.65%.
The latest RBI data shows that bank credit growth stood at 16.1% year-on-year as of May 31, excluding the impact of the HDFC merger. Deposit growth stood at 12.2% in the same period.
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