The Shifting Sands of Banking: Infrastructure Bonds and the Evolution of Bancassurance
March 2, 2025, 10:11 am
Location: India, Maharashtra, Mumbai
Employees: 10001+
Founded date: 2004
Total raised: $422.77M
In the ever-evolving landscape of finance, banks are like ships navigating through turbulent waters. Recent trends reveal a significant shift in how these vessels are funded. As deposit growth lags behind credit growth, banks are turning to infrastructure bonds, a lifeline in a sea of uncertainty. This strategic pivot is reshaping the financial horizon, with public sector banks leading the charge.
In the first 11 months of the current financial year, banks raised ₹89,588 crore through infrastructure bond issuances. This marks a staggering 75% increase compared to the previous year. Public sector banks (PSBs) are at the helm, accounting for 90% of these issuances. Private sector banks are left to trail behind, like smaller boats in a vast ocean.
Why this shift? The answer lies in investor preference. Institutional investors are gravitating towards infrastructure bonds, drawn by their senior unsecured status. These bonds are perceived as safer compared to tier-2 and additional tier-1 (AT-1) bonds, which have seen a decline in issuance. The recent regulatory write-offs of AT-1 bonds from Yes Bank and tier-2 bonds from Lakshmi Vilas Bank have cast a long shadow of caution over investors.
Once a beacon of high-yield investment, AT-1 bonds are now viewed with skepticism. Investors demand higher spreads to compensate for the added risk. In contrast, infrastructure bonds are attracting long-term investors like pension funds and insurance companies. They are willing to accept tighter spreads for the stability these bonds offer.
The frequent oversubscription of infrastructure bond issuances allows banks to optimize pricing. This consistent demand is a lifebuoy in a stormy sea. Additionally, the regulatory advantages—exemptions from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements—further enhance the appeal of these bonds. They are capital-efficient, allowing banks to address asset-liability mismatches effectively.
Suresh Darak, a financial expert, highlights the potential for banks to raise even more funds through infrastructure bonds. With a total infra credit portfolio of about ₹13 lakh crore, banks have only tapped into ₹2.5-3.0 lakh crore via these bonds. The math is simple: while banks pay 7.0-7.25% on term deposits, the actual cost is higher due to statutory pre-emptions. In contrast, raising funds through 10-15 year infrastructure bonds, even at a slightly higher interest rate of 7.50-7.60%, becomes a more attractive option.
As we sail further into the future, projections suggest that infrastructure bond issuances could surpass ₹1.50 lakh crore in FY26. This trajectory indicates a robust demand for long-term funding solutions, a beacon of hope for banks navigating the complexities of the financial landscape.
On another front, the bancassurance sector is celebrating a milestone. Axis Max Life Insurance and YES BANK have marked 20 years of partnership, a testament to resilience and collaboration. This enduring alliance has provided life insurance solutions to approximately 3.62 lakh customers, processing over 3,725 claims and disbursing more than ₹267 crore in claims. The total sum assured exceeds ₹64,000 crore, showcasing the partnership's impact on financial security across India.
The collaboration has thrived on a foundation of digital capabilities and customer focus. As both institutions look to the future, they are committed to driving digital transformation and enhancing customer engagement. The integration of InsurePro CRM and mSmart platforms will sharpen sales strategies and improve customer interactions.
The focus on need-based selling will unlock new growth avenues, deepening client relationships. Both organizations recognize that their people are their greatest asset. Investing in leadership development programs for branch managers will build a robust foundation for long-term success.
In this evolving landscape, the synergy between banks and insurance companies is crucial. It’s a dance of mutual benefit, where each partner plays a vital role in delivering comprehensive financial solutions. As they navigate the complexities of the market, their commitment to innovation and customer-centricity will shape the future of bancassurance.
In conclusion, the financial world is a dynamic arena, where strategies must adapt to changing tides. The rise of infrastructure bonds reflects a broader trend of risk aversion among investors. Meanwhile, the enduring partnership between Axis Max Life Insurance and YES BANK exemplifies the power of collaboration in delivering value to customers. As these institutions chart their courses, they will continue to influence the financial landscape, steering through challenges and seizing opportunities. The journey is far from over, and the horizon holds promise for those willing to navigate its waters.
In the first 11 months of the current financial year, banks raised ₹89,588 crore through infrastructure bond issuances. This marks a staggering 75% increase compared to the previous year. Public sector banks (PSBs) are at the helm, accounting for 90% of these issuances. Private sector banks are left to trail behind, like smaller boats in a vast ocean.
Why this shift? The answer lies in investor preference. Institutional investors are gravitating towards infrastructure bonds, drawn by their senior unsecured status. These bonds are perceived as safer compared to tier-2 and additional tier-1 (AT-1) bonds, which have seen a decline in issuance. The recent regulatory write-offs of AT-1 bonds from Yes Bank and tier-2 bonds from Lakshmi Vilas Bank have cast a long shadow of caution over investors.
Once a beacon of high-yield investment, AT-1 bonds are now viewed with skepticism. Investors demand higher spreads to compensate for the added risk. In contrast, infrastructure bonds are attracting long-term investors like pension funds and insurance companies. They are willing to accept tighter spreads for the stability these bonds offer.
The frequent oversubscription of infrastructure bond issuances allows banks to optimize pricing. This consistent demand is a lifebuoy in a stormy sea. Additionally, the regulatory advantages—exemptions from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements—further enhance the appeal of these bonds. They are capital-efficient, allowing banks to address asset-liability mismatches effectively.
Suresh Darak, a financial expert, highlights the potential for banks to raise even more funds through infrastructure bonds. With a total infra credit portfolio of about ₹13 lakh crore, banks have only tapped into ₹2.5-3.0 lakh crore via these bonds. The math is simple: while banks pay 7.0-7.25% on term deposits, the actual cost is higher due to statutory pre-emptions. In contrast, raising funds through 10-15 year infrastructure bonds, even at a slightly higher interest rate of 7.50-7.60%, becomes a more attractive option.
As we sail further into the future, projections suggest that infrastructure bond issuances could surpass ₹1.50 lakh crore in FY26. This trajectory indicates a robust demand for long-term funding solutions, a beacon of hope for banks navigating the complexities of the financial landscape.
On another front, the bancassurance sector is celebrating a milestone. Axis Max Life Insurance and YES BANK have marked 20 years of partnership, a testament to resilience and collaboration. This enduring alliance has provided life insurance solutions to approximately 3.62 lakh customers, processing over 3,725 claims and disbursing more than ₹267 crore in claims. The total sum assured exceeds ₹64,000 crore, showcasing the partnership's impact on financial security across India.
The collaboration has thrived on a foundation of digital capabilities and customer focus. As both institutions look to the future, they are committed to driving digital transformation and enhancing customer engagement. The integration of InsurePro CRM and mSmart platforms will sharpen sales strategies and improve customer interactions.
The focus on need-based selling will unlock new growth avenues, deepening client relationships. Both organizations recognize that their people are their greatest asset. Investing in leadership development programs for branch managers will build a robust foundation for long-term success.
In this evolving landscape, the synergy between banks and insurance companies is crucial. It’s a dance of mutual benefit, where each partner plays a vital role in delivering comprehensive financial solutions. As they navigate the complexities of the market, their commitment to innovation and customer-centricity will shape the future of bancassurance.
In conclusion, the financial world is a dynamic arena, where strategies must adapt to changing tides. The rise of infrastructure bonds reflects a broader trend of risk aversion among investors. Meanwhile, the enduring partnership between Axis Max Life Insurance and YES BANK exemplifies the power of collaboration in delivering value to customers. As these institutions chart their courses, they will continue to influence the financial landscape, steering through challenges and seizing opportunities. The journey is far from over, and the horizon holds promise for those willing to navigate its waters.