Union Bank of India is looking to raise about ₹10,000 crore, while State Bank of India may issue around ₹7,500 crore, three people familiar with the matter told ET.
More public sector lenders, including Punjab National Bank and Indian Bank, are also expected to tap the market, although details like the size and tenor are not yet finalised, the people said.
Indian state-run banks are planning new green bond issuances following Bank of Baroda’s successful ₹10,000-crore seven-year bond at a 7.10% coupon. Union Bank of India and State Bank of India are expected to raise significant amounts, with other public sector lenders also considering the market.
The pipeline is building even as investors show limited appetite for long-tenor bonds amid expectations that India is nearing the end of its rate-cut cycle.
Several borrowers have withdrawn planned sales due to spikes in yields driven by global volatility. On the day of Bank of Baroda’s issuance, state-run Sidbi scrapped a planned ₹8,000 crore, three-year bond after bids came in at higher-than-expected yields.
AgenciesUnion Bank, SBI and others to take cue after Bank of Baroda raises ₹10,000 cr at just 7.10%
The 7.10% yield for Bank of Baroda paper was notable because the 10-year government bond was trading at around 6.72% at the time. This implies that Bank of Baroda raised funds at a spread of roughly 40 basis points over the benchmark government security yield. Typically, such bonds are priced at a spread of 70-100 basis points above the benchmark paper.
Life Insurance Corporation (LIC) and the Employees’ Provident Fund Organisation (EPFO) fully subscribed to Bank of Baroda’s issue and are likely to participate in the planned Union Bank and SBI bonds as well, the people said. “March is typically when LIC and EPFO push to meet their corporate bond deployment targets, but supply has been thin this year as companies found bank loans more attractive. Still, it is unusual to see them invest at 7.10% for seven years when similar yields are available for three-year bonds,” a corporate bond trader at a primary dealership said.
Recent deals include Nabard raising ₹5,055 crore at 7.10% for three years, while Canara Bank mobilised ₹5,000 crore at 7.24% for 10 years.
India currently has no regulatory obligation for any institution to allocate funds specifically to green issuances.
“It is possible that the Centre may be nudging public sector institutions to support PSU bank bonds. But retail customers invest in LIC for strong returns and buying green bonds at lower rates could affect the final yield these institutions deliver,” a bank analyst at a brokerage said.
