Public sector banks manage to rollover AT-1 bonds for FY’22: report – Economic Times

Synopsis

As per Icra’s estimates, Rs. 20,505 crore of Additional Tier I (AT-I) bonds of public sector banks are due for the exercise of call option (after five years from issuance) in FY’2022 with majority in the second half of FY’2022. Of this they have together raised Rs 24471 crore.

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The coupon on these bonds is payable from the profits generated by the bank during the year and accumulated profits from the past.

Allaying concerns about their ability to raise additional tier-1 (AT-1) bonds given the market uncertainty arising from the pandemic public sector banks have largely raised fresh AT-I bonds nearly equivalent to the call options due in FY2022, which is likely to preserve their capital ratios, according to a report by ratings firm

.

As per Icra’s estimates, Rs. 20,505 crore of Additional Tier I (AT-I) bonds of public sector banks are due for the exercise of call option (after five years from issuance) in FY’2022 with majority in the second half of FY’2022. Of this they have together raised Rs 24471 crore.

Of the five major public sector banks analysed, two-State Bank of India and Canara Bank have raises more amounts than required for the exercise of call option. While Bank of Baroda, Union Bank of India and Punjab National Bank has raised nearly 80 percent or more.

“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 and also reduces the recapitalisation burden of the GoI” said Anil Gupta, vice president, financial sector ratings, Icra . ” While we still await the bank wise allocation of the budgeted capital infusion of Rs 20,000 crore into public sector banks in FY’2022, with the improved profitability and equity capital raise from markets, the near-term capital requirements remain negligible for most public banks for regulatory as well as growth requirements.”

Apart from the relatively better coupon on these AT-I bonds of public sector banks, other factors that supported the AT-I issuances in the domestic markets include their improved ability to service the coupon on these bonds. In FY’2021 and FY’2022, almost all of them wrote off their accumulated losses against their share premium after receiving approval from the Government of India (GoI) and the Reserve Bank of India (RBI), Icra said

The coupon on these bonds is payable from the profits generated by the bank during the year and accumulated profits from the past. As the PSBs wrote off their accumulated losses, their ability to service these AT-I bonds improved. This also led to credit rating upgrades on these AT-I bonds, which, coupled with the improved outlook on the earnings of PSBs, supported the issuance of these bonds.


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