The Reserve Bank of India (RBI) on Monday said banks would be allowed to raise Tier-II capital by issuing sub-ordinate debts having call and step-up option.
Currently, banks are permitted to raise lower Tier-II subordinated bonds without call and step-up options, while call option is permissible for raising upper-II bonds.
“On the review of international practices in this regard, it has been decided to permit banks to issue sub-ordinated debt as Tier II capital with call and step-up options,” the central bank said.
Lower Tier-II bonds have a minimum five years of maturity and banks can exercise call option on lower Tier-II bonds after five years.
“The issuing bank may have a step-up option which may be exercised only once during the whole life of the instrument in conjunction with the call option, after the lapse of five years from the date of issue. The step-up option shall not be more than 50 basis points. The limits on step-up apply to the all-in cost of the debt to the issuing banks,” RBI said. The regulator also said the lower tier-II bonds issued during January-March of 2008-09 should have a minimum tenure of 63 months.