Fund raise by Non-Banking Financial Companies (NBFCs) through perpetual bonds jumped 69 per cent last fiscal (FY25) to ₹16,185 crore against ₹9,549 crore in FY24 with the Reserve Bank of India (RBI) last year tightening bank fund flow to NBFCs due to their run-away growth. And the fund raising continues into FY26.
The RBI had increased the risk weights on unsecured consumer credit and bank credit to NBFCs on November 16, 2023 to pre-empt build-up of any potential risk in these segments.
Subsequently, with effect from April 1, 2025, the central bank reverted the risk weights on bank credit to NBFCs to pre-November 2023 level.
The allure of perpetual bonds
Perpetual bonds are fixed-income securities that have no maturity date. These bonds continue to pay interest indefinitely unless the issuer chooses to redeem them at a predetermined call date.
Investors are increasingly getting attracted to perpetual bonds in the backdrop of the equity market turning volatile and banks’ cutting interest rate on deposits. The number of issuances went up 32 per cent last fiscal to 70 from 53 in the previous year.
Vinay Pai, Head of Fixed Income, Equirus Capital, said the face value of the bonds of perpetual debt has been enhanced to ₹1 crore to protect investors interest.
Among NBFCs, he noted that Cholamandalam Investment & Finance Company was one of the largest issuers of perpetual bonds last financial year.
However, Pai cautioned that investors should refrain from these instruments if they do not understand the inherent risk they carry.
According to Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap LLP, structurally, perpetual bonds issued by NBFCs are perceived to be less vulnerable compared to AT1 bonds issued by banks, particularly during stress scenarios.
“This regulatory difference also influences the credit rating treatment of these instruments. While a AAA-rated bank’s AT1 bond is typically rated one notch lower (AA+) due to the presence of Basel III–mandated Point of Non-Viability (PONV) loss absorption clauses, AAA-rated NBFCs usually continue to enjoy a full AAA rating on their perpetual bonds — unless those are contractually designed to mimic bank AT1 loss-absorption features.
“This distinction is more than just technical — it plays a significant role in boosting the marketability of perpetual bonds and strengthening investor confidence,” he said.
Venkatakrishnan noted that in recent times, banks have remained hesitant in tapping the perpetual bond route, instead preferring instead to raise equity through Qualified Institutional Placements (QIPs).
For instance, the State Bank of India recently raised a massive ₹25,000 crore via QIP, paving the way for other public sector banks to follow suit. In contrast, public sector entities like REC, PFC, and IREDA, along with private players such as Axis Finance, Hero FinCorp, Hinduja Leyland Finance and Muthoot Fincorp, have been leading a renewed interest in perpetual bonds since last year.
Notably, PFC recently raised ₹475 crore through perpetual bonds at a coupon of 7.43 per cent, and the issue saw overwhelming interest, receiving bids worth ₹2,752 crore against a base size of ₹500 crore.
Venkatakrishnan emphasised that this clearly reflects the growing investor appetite for highly rated perpetual bond offerings.
Jashan Arora, Director, Master Trust Group, said perpetual bonds issued by NBFCs can offer more attractive returns than traditional bank fixed deposits and may appear less volatile than equities.
However, investors should be mindful of the risks involved, especially the credit quality and financial strength of the issuing NBFC.
Preferred route
Nikunj Saraf, Vice President, Choice Wealth, said after three consecutive repo rate cuts aggregating 100 basis points between February and June, the benchmark bond yields have fallen, pushing corporates to lock in long-term funding at attractive rates and creating a surge in record-high corporate bond issuances — now expected to cross ₹11 lakh crore in FY26.
As per the RBI’s Master Direction on Scale Based Regulation, NBFCs classified in the Middle Layer (ML) and Upper Layer (UL) are permitted to issue Perpetual Debt Instruments (PDIs) as part of Tier I capital, up to 15 per cent of their Tier I base. If issuances exceed this 15 per cent threshold, the surplus portion may still be included in Tier II capital, subject to meeting other prudential requirements.
The Rockfort Fincap Chief observed that with many more top-rated NBFCs and All-India Financial Institutions (AIFIs) actively evaluating the perpetual bond route, the market is witnessing a broader pipeline of issuers looking to time their offerings strategically.
“In essence, NBFCs are actively seeking to capture a segment of the hybrid capital market that banks once dominated. With banks increasingly relying on equity capital through QIPs, NBFCs are confidently stepping into the perpetual bond space, backed by strong investor demand and a more accommodating regulatory framework,” he said.
He emphasised that if this momentum continues, it could deepen India’s corporate bond market and broaden the spectrum of hybrid instruments beyond the traditional bank capital segment.
Swapnil Aggarwal, Director, VSRK Capital, said perpetual bond help improving capital adequacy ratios, helps in avoiding lump sum repayment obligations, and there is a huge demand from HNIs and institutional investors.
Investors are considering perpetual bonds as these bonds are attractive in a volatile equity market, as they offer higher returns compared to FDs and government bonds, suitable for conservative investors who want to avoid stock market volatility, he added.
Published on July 24, 2025
