Banks roll over FY22 AT-1 bonds – Times of India

Mumbai: Public sector banks have managed to successfully roll over their AT-1 (additional tier-1) bonds that were due for call option in FY22.

These bonds had received a bad publicity last year after the Yes Bank failure resulted in Rs 8,415-crore AT-1 bonds being written down to zero and investors in them getting a worse deal than equity investors.

The write-off also resulted in Sebi revising the norms for investments by debt mutual funds in these quasi-equity instruments issued by banks. The circular also revised the norms for the valuation of perpetual bonds issued by various classes of issuers (banks, NBFCs and corporates). According to a report by ratings agency ICRA, as mutual funds were a large investor segment in these bonds, these changes were expected to impact the demand for these instruments issued by the banks.

According to ICRA’s estimates, Rs 20,505 crore of AT-I bonds of PSBs and Rs 7,925-crore bonds of private banks are due for the exercise of a call option (after five years from issuance) in FY22 with a majority of Rs 19,750 crore in H2 FY22. ICRA attributes the success of the issuance to the relatively better return these bonds offered. Interest rates on debt have crashed after the RBI eased liquidity conditions in the wake of the pandemic.

However, all PSBs that had bonds coming up for repayment managed to collectively raise Rs 24,471 crore through the issue of fresh AT-1 bonds effectively rolling over their borrowing. In the private sector, two banks (Axis and HDFC Bank) raised Rs 12,371 crore. As compared to this, private banks had raised Rs 7,925 crore through AT-1 bonds in FY21.

“Given the impact of the pandemic and the perceived weakness in the financials of PSBs compared to their private counterparts, the large upcoming rollovers and the revised regulations were expected to pose challenges. However, all PSBs have largely raised fresh AT-I bonds nearly equivalent to the call options due in FY22, which is likely to preserve their capital ratios,” ICRA said.