Call options for instruments raised last year and worth Rs 28,430 crore are due in the next financial year.
Topics
at1 bonds | Indian Banks | private sector banks
Abhijit Lele |
Last Updated at December 22, 2021 15:23 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.
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Call options for instruments raised last year and worth Rs 28,430 crore are due in the next financial year. Topics at1 bonds | Indian Banks | private sector banks Abhijit Lele | Mumbai Last Updated at December 22, 2021 15:23 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. Dear Reader, Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance. We, however, have a request. As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed. Support quality journalism and subscribe to Business Standard. Digital Editor