Banks raise over Rs 37,000 cr via AT1 bonds amid capital ratio concern

Call options for instruments raised last year and worth Rs 28,430 crore are due in the next financial year.

bonds market, currencies, currency, RBI, yield
Abhijit Lele Mumbai
2 min read Last Updated : Dec 23 2021 | 1:55 AM IST
Indian banks have raised more than Rs 37,000 crore by issuing new Additional Tier 1 bonds (AT1) this financial year (FY22). The amount is higher than Rs 28,430 crore worth AT1 bonds for which call options are due in the FY22, addressing concerns on rollovers and capital ratios.

According to rating agency ICRA, Rs 20,505 crore of AT-I bonds of public sector banks (PSBs) and Rs 7,925-crore bonds of private sector banks (PVBs) are due for exercise of call option. Most bonds (worth Rs 19,750 crore) are due in the second half (H2 FY2022).

All PSBs have largely raised AT-I bonds nearly equivalent to the call options due in FY2022, likely preserving their capital ratios, ICRA said.

The demand from mutual fund investors remained muted and the AT-I bonds of PSBs were subscribed by other PVBs, pension funds and corporate treasuries. The coupon for the bonds issued by the banks largely remains similar or lower than the bonds for which the call option is scheduled to be exercised this year, ICRA said.

The interest amongst mutual funds, active investors in bank AT1 bonds, has been very low after Securities and Exchange Board of India revised the norms for investments by debt schemes in the Basel III debt instruments. The capital market regulator also changed rules for the valuation of perpetual bonds issued banks, non-banking financial companies (NBFCs) and corporates)

The rollover of the AT-I bonds by public banks at competitive rates compared to their earlier issuances is a positive for the capital ratios, said Anil Gupta, vice president, Financial Sector Ratings at ICRA. It also reduces the recapitalisation burden of the government.

There were apprehensions over the rollover of these debt instruments, especially for public sector banks, due to perceived weakness in their financials compared to their private counterparts, the large upcoming rollovers and the revised regulations.

Moreover, the appetite of foreign investors in the AT-I bonds could also have been uncertain given their weak standalone credit profile and features of the instruments.

Given the impact of SEBI’s regulations and the uncertainty regarding the appetite of domestic investors, private banks, like HDFC Bank and Axis Bank, also raised AT-I bonds in the overseas markets.

Further, some banks like ICICI Bank are yet to raise AT-I in the current fiscal, however with strong capital position, it may decide not to do so.

Topics :at1 bondsIndian Banksprivate sector bankspublic sector banks

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