Infrastructure Bonds: SBI Raises Rs 10,000 Crore In Fourth Tranche, Are They Better Than FDs?

SBI’s latest tranche of infrastructure bonds got oversubscribed by over five times. It comes with a 15-year tenure and a coupon rate of 7.49 per cent. But with interest rates high and many banks also offering similar rates on 5-7 year fixed deposits, should you go for infrastructure bonds? Read on

State Bank of India (SBI) on September 22, 2023 announced that it has raised Rs 10,000 crore through its fourth issue of infrastructure bonds. These bonds come with a 15-year maturity and a yield of 7.49 per cent and have garnered considerable attention from a diverse range of investors.

SBI initially aimed to raise Rs 4,000 crore through this issue, but it was oversubscribed five times, with a total of 134 bids worth Rs 21,045 crore flooding in. Investors who have shown interest in these bonds hail from various sectors, including provident funds, pension funds, insurance companies, mutual funds, and corporates. Retail investors can also participate in it.

Coupon Rate

The coupon rate offered by SBI, stands at 7.49 per cent, only marginally higher than the corresponding FBIL G-Sec par curve by 0.12 per cent, showing it is not offering anything much higher than government securities. The rate is also lower than the 7.54 per cent it offered in the third issue of infrastructure bonds.

It had raised Rs 10,000 crore in August as well, and with the current issue, the total outstanding long-term bonds issued by the bank stands at Rs 39,718 crore, according to an SBI release.

SBI intends to utilise this capital for lend to infrastructure projects and affordable housing initiatives.

Understanding Infrastructure Bonds

Infrastructure bonds are financial instruments strategically issued by governments or private companies to raise funds dedicated to advancing various infrastructure projects. These projects encompass a wide spectrum, including building critical roadways, bridges, airports, power plants, railways, and telecommunications networks.

Infrastructure bonds are an attractive investment option for investors seeking a consistent income stream. They offer a fixed coupon rate, in this SBI is offering 7.49 per cent. This rate typically remains constant throughout the bond’s tenure.

Incidentally, several large banks are currently providing deposit rates that are only slightly lower on their 5-7-year fixed deposits, and comparable rates to senior citizens. From a taxation perspective, the yearly coupons received from infrastructure bonds are subject to taxation according to an individual’s income tax slab.

Further, there are infrastructure bonds issued by government-backed institutions such as the Indian Railway Finance Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC), and the National Highways Authority of India (NHAI). These bonds offer higher tax benefits, and even the interest earned on them is tax-free. Typically, they come with a minimum 10-year term and a 5-year lock-in period.

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