Bank’s raise through Tier I capital bonds halves to Rs 17,516 cr in FY24
With a strong capital adequacy foundation and higher interest rates, the activity of raising debt capital – Tier I and Tier II bonds – by banks has declined sharply in the financial year 2023-2024.
Banks raised around Rs 17,516 crore through the Additional Tier I (AT1) bonds in FY24, which was 49.8 per cent less than the amount raised in FY23, according to Prime Database.
The country’s largest lender State Bank of India has raised Rs 8,101 crore through AT-1 bonds in FY24. Other major issuers of AT1 bonds included two public sector lenders, Punjab National Bank and Canara Bank.
Senior executives with a large PSB said internal provisioning has improved capital adequacy over the past two years due to improved profitability. Therefore, the dependence on external support through debt capital – AT1 and Tier II bonds – was smaller.
There is also less investor interest in AT1 bonds after private lender Yes Bank wrote down these instruments due to deteriorating financial conditions in 2020.
These are fixed-rate instruments and lenders do not want to lock themselves into high-interest instruments for the long term, especially when signs of a rate softening cycle are around, the bond market dealer said.
According to a Care Ratings review of banks’ performance in Q3-24, the median Capital Adequate Ratio (CAR) of commercial banks fell by 18 basis points year-on-year (YoY) to 15.9 percent at the end of December 2023.
It remained well above the legal requirement of 11.5 percent, indicating a stable position.
Besides a healthy CAR, the number of AT1 bonds eligible for a call option was low at Rs 11,900 crore in FY24, leading to less demand for bond replacement, a rating agency executive said.
The drawdown of capital through Tier II bonds by banks and non-banking finance companies also fell by half to Rs 24,529 crore in FY24, from Rs 49,763 crore in FY23. SBI was also the largest issuer of Tier II bonds with Rs 10,000 crore. Two other major Tier II bond issuers in FY24 were Bank of Baroda and Punjab National Bank, according to information provided by the Prime database.
First print: April 3, 2024 | 10:04 PM IST