Bank Bonds in India

Bank Bonds are debt securities issued by Indian banks to raise capital and fund growth. Under Basel III norms, banks need to maintain specified levels of regulatory capital, and the bond market is one of the main routes they use to get there.

There are three categories: senior bonds, Tier 2 bonds, and AT1 perpetual bonds. They sit at different points in the capital structure, carry different risks, and pay different yields. PSU banks dominate this market, with private banks like HDFC, ICICI and Axis also active. Ticket sizes start from Rs. 10,000 for senior and Tier 2 listings, while AT1 bonds are restricted to institutional investors with a Rs. 1 crore minimum.

GoldenPi lists currently traded bonds from these issuers on a SEBI-registered Online Bond Platform. KYC, payment, and demat holding sit in one place.

What are Bank Bonds?

Bank bonds are debt securities issued by banks to raise capital. The Reserve Bank of India sets capital adequacy requirements under Basel III, and banks cannot rely only on deposits and equity to meet those numbers, so they go to the bond market.

When you invest, you are lending to the bank. You get a coupon (usually semi-annual) and your principal back at maturity. The yield and recovery rights depend on where your bond sits in the bank's capital structure.

Types of Bank Bonds 

There are three main categories. They look similar on a listing page but rank very differently in the capital structure.

AT1 bonds have a Rs. 1 crore minimum ticket size, and SEBI has restricted them to qualified institutional buyers since October 2020. This followed the Yes Bank write-down in March 2020, where AT1 bondholders lost over Rs. 8,400 crore.

Bank Bonds' Interest Rates

Bank bond rates move with the rate cycle, the issuer's credit rating, and the bond's position in the capital structure. Indicative ranges right now:

Live yields for each security are shown on GoldenPi at the time of investment.

List of Bank Bonds in India

PSU banks issue the bulk of this market. Active issuers include:

• State Bank of India (SBI)
• HDFC Bank
• ICICI Bank
• Axis Bank
• Punjab National Bank (PNB)
• Bank of Baroda
• Canara Bank
• Union Bank of India
• IDFC FIRST Bank
• IndusInd Bank

Risks to Understand

Senior bonds from AAA-rated banks carry very low credit risk. The picture changes as you move down the capital structure. There are four things that matter.

1. Credit risk - At the point of non-viability, RBI can write down Tier 2 and AT1 bonds partially or fully, so even AAA-rated paper from a stressed bank carries real loss potential.
2. Coupon skip risk on AT1 - Banks can suspend AT1 coupon payments without it counting as default, so the income from these bonds is never assured.
3. Liquidity risk—Listed does not always mean traded, especially for older series and lower-rated paper, so an early exit is not always available at the price you want.
4. Interest rate risk - Bond prices fall when market yields rise, so the resale value before maturity moves against you in a rising rate cycle.

The phrase "best saving bonds" or "savings bond rates" usually refers to RBI Floating Rate Savings Bonds, a separate sovereign product. Searches for "high-yield savings bonds" sometimes land on AT1 bonds, which are not savings products and carry real loss potential.

How to Buy Bank Bonds on GoldenPi

GoldenPi is a SEBI-registered Online Bond Platform Provider. The process is straightforward:

1. Log in to your KYC-verified account.
2. Filter by issuer, rating, yield, or tenure under the Bank category.
3. Each listing shows the coupon, maturity, rating, bond type and traded volume.
4. Pay via NEFT or RTGS from your linked bank account.
5. Bonds are credited to your NSDL or CDSL demat after settlement.

Minimum investment is typically Rs. 10,000 for senior and Tier 2 listings. AT1 bonds require a Rs. 1 crore minimum and are restricted to institutional investors.

Taxation

Interest from these bonds is taxed at your slab rate as income from other sources. TDS at 10% applies on listed bonds when annual interest from one issuer crosses Rs. 10,000.

Gains on listed bonds sold within 12 months are taxed at a slab. Beyond 12 months, the gain is long-term, taxed at 12.5% without indexation under the Finance (No. 2) Act, 2024. Hold to maturity, and only the coupon is taxed each year.

Top 5 Bank Bonds in India