Indian corporates must use current attractive lower yield spreads versus sovereign papers to lock-in longer-duration funds as these spreads are likely to widen towards the year-end, the head of debt capital markets (DCM) at SBI Capital Markets told Reuters.

"At the current spread, the longer the issuers go, the better it would be for them," said Arnab Choudhury, executive vice president and group head at DCM.

"Credit spreads are at historic lows so if you are getting a 15-year fund at 13 basis points (bps) spread with government bonds, it is a no-brainer. So I guess you should go as long as you can, provided you need such funds."

State Bank of India this week raised 100 billion rupees ($1.21 billion) through 15-year infrastructure bonds at 7.54% coupon, just 13 bps above the corresponding government bond and lower than similar tenor state debt.

Choudhury, a debt markets veteran, also indicated that there is strong appetite from long-term investors for higher duration papers.

Long-term investors like insurance companies, provident funds and pension funds are seeking longer duration papers, resulting in a compression in spreads for the 10-year government bond yield with 30-40 year papers.

Housing Development Finance Corp, a large issuer's exit from long-end fund raising post its merger with HDFC Bank, also leaves a void to fill and other issuers can benefit, merchant bankers said.

Choudhury added a rise in state debt supply in the last quarter of the year could push up long-end yields and subsequently corporate debt yields, so issuers should look to raise funds now.

"For corporates, the earlier the better as far as fundraising is concerned."

Lower spreads could also nudge other private banks to increase duration for infrastructure bonds to around 10 years, from seven years currently, he said. ($1 = 82.6900 Indian rupees) (Reporting by Dharamraj Dhutia and Bhakti Tambe Editing by Swati Bhat and Sonia Cheema)