Archive · 1 Dec 2025
Insurers Expand SDL Forwards in Bond Market
Insurance companies in India are now buying more state development loans (SDLs) in the bond forwards market.
This market is still new, starting just seven months ago.
Insurers like ICICI Prudential and Axis Max Life are buying SDLs because they offer higher returns compared to government bonds.
The spreads, or the difference in interest rates, are wider for SDLs, making them attractive.
The market is small but growing, with more deals expected as state governments borrow more money.
Experts say this trend will continue, especially in the long-term bond market.
Insurance companies now account for 10-15% of the bond forwards market, focusing on SDLs.
ICICI Prudential Life Insurance was the first to execute SDL bond forwards in the 20-25 year segment.
SDLs offer a 40-50 basis points spread over G-Secs, attracting insurers for higher yields.
The market is still evolving, with limited deals but growing interest from insurers.
State government borrowing is expected to increase, widening SDL spreads further.
- Who
- Insurance companies, particularly ICICI Prudential Life Insurance and Axis Max Life Insurance
- What
- Increased participation in the state development loan (SDL) forwards market
- When
- Since May 2025, with significant activity in August 2025
- Where
- India
- Why
- To capture higher yields and spreads over government securities (G-Secs)
- Market Share
- 10-15% of overall bond forwards
- First Deal
- May 5, 2025 (Kotak Life Insurance)
- SDL Spread
- 40-50 basis points above G-Secs
- State Borrowing
- Expected to rise to Rs 4.7 lakh crore in Q4FY25
- State Fiscal Deficit
- Expected to widen to 3.5% of GSDP in FY26