BOI to raise up to Rs 3,000 cr via tier II bonds to support business growth

Mumbai-based lender has board nod to raise up to Rs 6,500 cr in FY24, of which Rs 4,500 cr would be via AT1 bonds/equity and balance via tier II bonds

Public sector lender Bank of India plans to raise upto Rs 3,000 crore in capital through tier II bonds in the current financial year to support business growth.

The Mumbai-based lender has board’s approval in place to raise up to Rs 6,500 crore in FY24, of which Rs 4,500 crore would be through additional tier-I bonds/equity and balance via tier II bonds. The tier II bond issuance would be subject to market conditions, bond market sources said.  

Its total capital adequacy ratio (CAR) stood at 16.28 per cent, with tier I of 14.41 per cent and tier II of 1.87 per cent at the end of March 2023. The capital requirement is linked to risk-weighted assets (RWA). Its RWA grew by 12.05 per cent YoY to Rs 3.54 trillion at end of March 2023.

 

Rating agency CARE has assigned “AA+” rating to the proposed offering of Basel III-compliant tier II bonds. BOI had issued tier II bonds for Rs 1,800 crore in FY22. It redeemed tier II bonds worth Rs 2,500 crore in FY22.

Tier-II bonds under Basel III are characterised by a point-of-non-viability (PONV) trigger due to which the investor may suffer a loss of principal.

According to data collated by JM Financial Services group, commercial banks in India issued tier II bonds worth Rs 16,319 crore in FY22 and Rs 59,686 crore in FY23.

CARE Ratings said in a statement that the bank issued AT1 bonds worth Rs 1,500 crore in FY23. The equity infusions in the past and the bank reporting profit for the last four years have led to an improvement in the CAR of the bank. The comfortable capital cushion has enhanced its ability to absorb asset quality pressures and to support growth in the near term.With improvement in profitability. The bank is expected to maintain a CAR of over 2.5 per cent above the regulatory requirement in the near to medium term, the rating agency said.

As for raising equity capital, last month the bank informed analysts after the FY23 results, that it will consult market intermediaries for the best right time to go for the equity raise. Also, it may not raise equity capital in one go but raise in one or more tranches, depending on the market situation.