Why is NaBFID choosing bank loans over bond market this year?

Synopsis

NaBFID is prioritizing bank loans over bond markets this year due to lower interest rates and significant borrower prepayments exceeding ₹10,000 crore. Banks are offering rates below 7%, making them more attractive than bond issuances. This shift in strategy follows repo rate cuts, enabling banks to provide cheaper financing.

Mumbai: The National Bank for Financing Infrastructure and Development (NaBFID) is leaning on bank loans instead of bond markets this year, as lower interest rates and over ₹10,000 crore in borrower prepayments have eased its funding needs. Although it planned to raise $1 billion in 2025 through external commercial borrowings, including a $500 million offshore loan, NaBFID has delayed bond issuance with banks offering sub-7% rates. Following repo rate cuts, borrowers refinanced at cheaper rates, prompting NaBFID to revise its strategy.

NaBFID has already received more than ₹10,000 crore in prepayments this year, compared with negligible amounts last year, as borrowers refinanced loans at lower rates offered by commercial banks after repo rate cuts. Repo-linked lending has allowed banks to provide cheaper money to government-linked financiers such as REC and Power Finance Corp, creating a rate differential of over 100 basis points with NaBFID's earlier advances.

"At this point of time, bank borrowing has become cheaper, so I can easily borrow from the banks rather than hitting the bond market," said Rajkiran Rai managing director NaBFID

Although it had earlier planned to borrow ₹60,000-65,000 crore this fiscal, the plan may change due to borrower prepayments. NaBFID's average yield on loans was 8.6% last year, but top-rated borrowers are now raising funds below 7%, making bank borrowing attractive though not a permanent option as rates could rise again. The institution borrowed ₹53,000 crore until June 30, 2025, with 85% through bonds and 15% from banks, including ₹45,000 crore via NCDs and under ₹10,000 crore from banks, while in the first quarter of FY26 it raised ₹4,000 crore.

Having started with operational and brownfield projects, NaBFID is now also funding greenfield ones, with disbursements spread across energy, transport and logistics, and communication. Loan sanctions have crossed ₹2.5 lakh crore, of which ₹90,000 crore has been disbursed, ₹1.35 lakh crore is in the pipeline, and this year's fresh sanctions are expected at ₹1.2 lakh crore.

The state-backed infrastructure financier had planned to raise about $1 billion in 2025 through external commercial borrowings, including a $500 million offshore loan, but has delayed tapping debt markets as banks are offering funds at sub-7% levels, cheaper than bond issuances.

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