Three commercial banks, including State Bank of India (SBI), Canara Bank and Axis Bank, are expected to raise around Rs 7,500 crore through additional Tier I (AT I) bonds by the end of December 2021 They will benefit from being able to raise funds at lower rates following the upgrading one notch of the AT I ratings of four public sector lenders on strengthening their overall credit profile, they said. bond brokers.
Canara Bank and Indian Bank instruments have changed from “AA†to “AA +â€. Punjab National Bank and Union Bank bonds were upgraded from “AA-†to “AAâ€.
There is an improvement in the capital buffers against minimum regulatory requirements, an improvement in profitability as well as in the distributable reserve position of these four PSBs, CARE said.
Ajay Manglunia, Managing Director (MD) and Head of Institutional Fixed Income, JM Financial, said the upgrade is expected to further increase interest in bonds issued by PSBs. It will also reduce prices by 15 to 20 basis points for future AT I bond issues.
The country’s largest lender, SBI, plans to raise an additional Rs 4,000 crore, Axis Bank 2,000 crore and Canara Bank 1,500 crore.
Another public sector lender, Bank of Baroda, on Wednesday raised Rs 2,000 crore via AT I bonds at 7.95%. The market response has been strong with demand exceeding Rs 5,000 crore, but the bank has increased the amount shown, debt market sources said.
By September 2021, SBI had raised Rs 4,000 crore through AT I bonds at a coupon rate of 7.72%.
AT I bonds are perpetual debt securities, which banks are allowed to raise under Basel III capital and form part of banks’ Tier I capital.
Under the regulatory standards of the Reserve Bank of India (RBI), the issuing bank has discretion over coupon payments at any time on these instruments. A bank may not pay a coupon if it does not have sufficient distributable reserves to serve the coupon on AT I bonds.
These bonds also have characteristics of absorbing losses through conversions, write-downs and write-offs in the event of a violation of a pre-specified trigger on the funding requirement.
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