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A day after securing board approval to raise ₹20,000 crore via infrastructure bonds, Union Bank of India announced its plans to issue the first ₹7,500 crore tranche of 10-year bonds on Friday, three merchant bankers told Mint.

The issue will have a base size of ₹3,000 crore and a greenshoe option of ₹4,500 crore. The bonds are rated AAA by Care Ratings.

On 13 February, Mint reported that state-run lenders are preparing to tap the debt market through infrastructure bonds in March.

Banks and financial institutions raise funds through infrastructure bonds to finance their long-term infrastructure projects. These bonds have a minimum maturity of seven years and are eligible for certain regulatory exemptions, such as the statutory liquidity ratio and cash reserve ratio requirements. Affordable housing loans also qualify for lending against infrastructure bonds.

The committee of Directors for fund raising (non-capital) approved the issuance of long-term bonds amounting up to ₹20,000 crore in one or more tranches to finance infrastructure and affordable housing as per the board-approved plan, Union Bank of India said in a regulatory filing on Monday.

The bank's decision to raise funds through infra bonds followed Bank of Baroda's successful 27 February issuance of seven-year green infra bonds for ₹10,000 crore at 7.10%, raising hopes that other lenders could also tap the debt market.

So far in 2025-26, only three banks—Bank of India, Bank of Baroda, and Axis Bank—have tapped infrastructure bonds, raising a total of ₹25,000 crore, as against ₹94,488 crore raised by 11 lenders a year ago, according to ratings firm Icra Ltd.

Mint's emailed queries sent to Union Bank of India remained unanswered.

Infrastructure bonds' comeback underscores funding pressures: As deposit growth lags credit growth, banks are seeking long-term, regulation-efficient funding even as elevated corporate bond yields have made such issuances costly.

Since the beginning of the month, interest rates on three-month certificates of deposits (CDs), issued by scheduled commercial banks and select all-India financial institutions (AIFIs), have risen by 25-50 basis points (bps) to 7.30-7.80% as of 13 March, while one-year CD rates have increased by about 25bps to 7.15%, according to data from Derivium Tradition Securities India Pvt. Ltd.

Yield on the 10-year benchmark government bond ended at 6.71% on Tuesday, up by 13bps since the start of 2026.

Rates on CDs and longer-tenor corporate bond yields remain elevated despite the Reserve Bank of India injecting ₹1 trillion into the banking system through two tranches of open-market operations, making infrastructure bond issuances expensive at current levels, though they remain among the most efficient funding tools for banks, according to treasury officials.

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