List of Subordinate bonds in India 2026

Banks and financial institutions in India often raise funds from investors through bonds. One such type is subordinate bonds, which are commonly issued to strengthen a bank’s capital base and support long-term financial stability.

For investors, these bonds provide an opportunity to earn regular interest income over a fixed period. They usually offer slightly higher interest rates compared to some traditional bonds because they carry a different level of risk.

In case a bank faces financial trouble, subordinate bonds are repaid after other senior debts, which makes them a bit riskier than standard bonds. Because of this structure, understanding how these bonds work is important before considering them as an investment option.

What are Subordinate Bonds?

Subordinate bonds are a type of debt issued by banks and financial institutions where repayment priority is lower compared to regular or senior bonds. This means if the issuer faces financial trouble, senior lenders and depositors are paid first, and subordinate bond investors receive repayment only after those obligations are settled.

Because they carry higher risk for investors, subordinate bonds usually offer higher interest rates than many traditional bonds. Most of these bonds are unsecured, meaning they are not backed by specific assets or collateral.

Banks in India commonly issue subordinate bonds to strengthen their regulatory capital, particularly to meet Tier II capital requirements set by banking regulators. These bonds act as an additional financial buffer that helps protect depositors during periods of financial stress.

Subordinate bonds generally fall between senior debt and equity in the capital structure. They are riskier than senior bonds but safer than company shares. In India, common forms include Tier II bonds and Additional Tier 1 (AT1) bonds, which are often issued by banks to maintain their capital adequacy levels.

Key Features & Benefits of Subordinate bonds

Subordinate bonds have several unique features that differentiate them from regular bonds and fixed-income instruments. These characteristics influence how they work, the level of risk involved, and the type of returns investors can expect. Understanding these features helps investors evaluate whether subordinate bonds fit their investment goals and risk tolerance.

Lower Repayment Priority

Subordinate bonds are repaid only after all senior debts and primary creditors are cleared if the issuer faces liquidation. This lower repayment priority is the main reason these bonds carry higher risk.

Typically Unsecured

Most subordinate bonds are unsecured and are not backed by specific assets. Repayment depends mainly on the financial strength and creditworthiness of the issuing bank or financial institution.

Used as Tier II Capital

Banks in India often issue subordinate bonds to meet Tier II capital requirements under regulatory norms. These bonds act as an additional capital buffer that helps banks absorb losses during financial stress.

Higher Interest Returns

Because they carry more risk than senior bonds, subordinate bonds usually offer higher interest rates. This higher yield acts as compensation for investors taking on additional risk.

Predictable Interest Income

Despite higher risk, these bonds still provide fixed interest payments at regular intervals. This makes them suitable for investors who want steady income from debt investments.

Issuer Call Option

Many subordinate bonds come with a call option, allowing the issuer to redeem the bond before maturity after a certain period, usually after 5 or 10 years, subject to regulatory approval.

List of Subordinate Bonds in India

Several banks and financial institutions in India issue subordinate bonds to strengthen their capital base and meet regulatory capital requirements. These bonds are usually issued as Tier II capital instruments and may offer attractive interest rates depending on the issuer and tenure.

Who Should Invest in Subordinate Bonds?

Subordinate bonds are suitable for investors who are comfortable taking slightly higher risk in exchange for potentially better returns. They are generally considered by investors who already understand bond markets and want higher income opportunities.

• Yield-Seeking Investors: Higher interest rates make subordinate bonds attractive for investors looking for better returns from fixed-income investments.
• Diversified Portfolio Investors: Investors can add subordinate bonds to diversify their portfolio and improve overall return potential.
• High-Net-Worth Individuals (HNIs): Wealthier investors and experienced market participants often invest in these bonds to capture higher yields while balancing risk across multiple asset classes.
• Regular Income Investors with Risk Tolerance: Some investors choose subordinate bonds for predictable interest payments, provided they are comfortable assessing the issuer’s financial health and credit rating.

Risks Involved in Subordinate Bonds

Subordinate bonds can offer higher returns, but they also come with certain risks that investors should understand before investing. Since these bonds rank lower in the repayment structure, they can be more sensitive to financial or market problems.

Subordination Risk

Subordinate bonds can offer higher returns, but they also come with certain risks that investors should understand before investing. Since these bonds rank lower in the repayment structure, they can be more sensitive to financial or market problems.

Credit and Default Risk

These bonds are generally unsecured and rely completely on the issuer’s financial strength and cash flow. If the financial condition of the issuing bank or company weakens, the bond’s market value can drop and default risk increases.

Regulatory Write-Down Risk

Certain bank-issued subordinate bonds may include regulatory clauses allowing authorities to write down the bond value or convert it into equity if the bank becomes financially non-viable. This can result in partial or complete loss of investment.

Liquidity Risk

Subordinate bonds usually have lower trading activity compared to senior bonds in the secondary market. Because fewer investors buy and sell them regularly, selling the bond quickly before maturity may require accepting a lower market price.

Interest Rate and Call Risk

Like most fixed-income investments, subordinate bond prices can fall when overall interest rates rise in the market. In addition, some bonds have call options allowing issuers to redeem them early, which may affect expected long-term returns.

How Do Subordinate Bonds Work?

Subordinate bonds operate as a junior layer of debt in a company’s capital structure. Investors lend money to the issuer and receive interest payments, but repayment priority is lower than senior creditors if financial problems occur.

• Repayment Hierarchy: In case of liquidation, payments follow a specific order. Senior debts are settled first, subordinate bondholders are paid next if funds remain, and shareholders receive payment last after all debts are cleared.
• Unsecured Structure: Most subordinate bonds are unsecured and not backed by physical assets. Repayment mainly depends on the financial stability and creditworthiness of the issuing bank or financial institution.
• Interest Payments and Maturity: Investors receive periodic interest payments, usually at higher rates than senior bonds. The principal amount is typically repaid at maturity unless the bond has special redemption conditions.
• Capital Raising for Issuers: Banks and companies issue subordinate bonds to raise long-term funds without issuing new shares. This helps them strengthen their capital position without diluting ownership.
•  Banking Regulations and Safety Buffer: In India, banks issue these bonds to meet regulatory capital requirements. Some bonds may include call options for early redemption or regulatory clauses allowing write-down if the bank becomes financially non-viable.

Tax Applicability on Subordinate bonds

Income earned from subordinate bonds is taxable in India under regular income tax rules. Investors generally pay tax on two components, the interest income received during the holding period and any capital gains earned when the bond is sold or redeemed.

1. Taxation on Interest Income

Interest income from subordinate bonds is taxed as “Income from Other Sources” under Indian income tax laws. The interest received during the financial year is added to the investor’s total income and taxed accordingly.

• Taxed as per income slab: The total annual interest is added to your overall income and taxed according to your applicable tax slab rate.
• TDS deduction rule: Issuers usually deduct 10% TDS if total annual interest from the bond exceeds ₹10,000.
• Higher TDS without PAN: If an investor does not provide a PAN, the TDS rate may increase to 20%.
•  Form 15G or 15H option: Investors whose income is below the taxable limit can submit these forms to avoid TDS deduction.
• ITR reporting requirement: Interest income must be reported under Income from Other Sources while filing the income tax return.

2. Taxation on Capital Gains

Capital gains tax on subordinate bonds depends on whether the bond is listed on a stock exchange and how long the investor holds it before selling or redeeming it.

•  Listed bonds (up to 12 months): Gains are treated as Short-Term Capital Gains (STCG) and taxed according to the investor’s income tax slab.
• Listed bonds (more than 12 months): Gains are treated as Long-Term Capital Gains (LTCG) and taxed at 12.5% without indexation benefits.
•  Unlisted bonds: Any gains from unlisted subordinate bonds are generally taxed as short-term capital gains at the investor’s slab rate.
•  Redemption gains: If the bond is held until maturity, any profit earned is also subject to applicable capital gains tax rules.
• Tax reporting: Capital gains must be reported in the Capital Gains section while filing the income tax return.

3. Special Categories

Some subordinate bonds fall under special categories depending on their structure or purpose. These bonds may have slightly different tax treatment, especially when they do not pay regular interest or offer specific capital gains benefits.

• Zero-Coupon Bonds: These bonds do not pay periodic interest. The entire difference between the purchase price and maturity value is treated as capital gains.
•  Section 54EC Bonds: Bonds issued by entities such as REC or NHAI may help investors claim capital gains exemption on property sales up to ₹50 lakh.
• Tax on interest: Even in tax-saving bonds, the interest earned remains taxable according to the investor’s income tax slab.
• ITR compliance: Interest should be reported under Schedule OS, while capital gains must be declared under Schedule CG in the income tax return.
•  TDS verification: Investors should check Form 26AS or AIS to ensure the deducted TDS is properly reflected and can be claimed while filing taxes.

Who Should Invest in Subordinate Bonds?

Subordinate bonds are generally suitable for investors who are comfortable taking slightly higher risk in exchange for better returns. They are often considered by investors who already have a stable financial base and want higher income from debt investments.

• High-Net-Worth Individuals (HNIs): Investors in higher income tax brackets often invest in subordinate bonds to earn higher coupon rates. The additional yield compared to senior bonds can help improve post-tax returns.
• Yield-Seeking Income Investors: Investors looking for regular income may choose subordinate bonds. These bonds provide higher yields as compensation for the additional risk involved.
• Institutional Investors and Family Offices: Large investors such as insurance companies, mutual funds, and family offices invest in subordinate bonds after carefully evaluating the issuer’s financial health and capital adequacy position.
•  Portfolio Diversification Investors: Investors who already have safer investments may allocate a small portion of their debt portfolio to subordinate bonds to enhance overall returns.
• Experienced Debt Market Investors: Investors who understand credit risk, issuer ratings, and bond market movements may find subordinate bonds suitable for balancing risk and return within a diversified portfolio.

How to Buy Subordinate Bonds?

Retail investors in India can buy subordinate bonds through online bond platforms, stock brokers, or the secondary bond market. The process is fairly simple today and works similar to buying stocks through a trading account.

• Open a Demat Account: Subordinate bonds are held in electronic form, so a Demat account is required. If you already trade stocks, the same account can be used to purchase bonds.
•  Complete KYC Verification: Investors must complete KYC using documents such as PAN card, Aadhaar, and bank account details. Most online bond platforms allow quick digital verification.
• Choose a Trusted Platform or Broker: Subordinate bonds can be purchased through SEBI-registered online bond platforms or stock brokers that offer access to corporate and bank-issued bonds.
• Research Available Bonds: Compare bonds based on credit rating, issuer reputation, yield to maturity (YTM), maturity period, and call options before making a decision.
• Place the Investment Order: Select the bond, enter the investment amount or quantity, and complete the payment using UPI, net banking, or trading account balance.
• Bond Allotment to Demat: Once the transaction is completed, the bonds are credited to the investor’s Demat account, usually within one or two settlement days depending on the platform or market.

Disclaimer

The list of subordinate bonds mentioned above is compiled using publicly available information from the National Securities Depository Limited (NSDL) website as of 13 March 2026. Bond availability, credit ratings, coupon rates, maturity details, and regulatory guidelines may change over time depending on issuer updates and market conditions. This information is shared for general educational purposes only and should not be considered investment advice or a recommendation to buy or sell any bond. Investors are advised to verify the latest details and consult a qualified financial advisor before making any investment decision.