Domestic Bonds

Private banks refrain from issuing AT-1 bonds in the domestic market

Right now, almost three or four state-owned banks are looking to issue Tier 1 bonds.

By Manish M Suvarna

Even though public banks are tapping into the corporate bond market with additional Tier 1 (AT-1) bonds, private banks have remained on the sidelines as demand for mutual funds continues to be reduced after the latest depreciation of Yes Bank perpetual bonds. year.

Some private banks instead opt for foreign markets for fundraising, since interest rates are low. Recently, HDFC Bank and Axis Bank issued AT1 bonds in overseas markets – Axis Bank raised $ 600 million and HDFC Bank mopped $ 1 billion.

“After the valuation standards made applicable to perpetual bonds, mutual funds have remained on the sidelines. Market appetite has improved a bit among wealthy clients, but this only affects the more secure banks like the State Bank of India (SBI), Bank of Baroda, Canara Bank, and Union Bank. Private banks have chosen to enter the foreign market for lack of a better quantum at a fair price, ”said Ajay Manglunia, MD and head of institutional fixed income at JM Financial.

At present, nearly three or four state-owned banks are looking to issue Tier 1 bonds. PSBs seeking to tap the corporate bond market with AT-1 issues include SBI, Union Bank, Canara Bank and BoB . They plan to cumulatively raise over Rs 10,000 crore through Tier 1 bonds.

Market sentiment for some PSBs has revived after Sebi earlier this year changed the perpetual bond rule. The deemed residual maturity of the Basel-III AT-1 bonds would be 10 years until March 31, 2022. Sebi declared from April to September 2022, it would be valid for 20 years, and from October 2022 to March 2023, it would have a lifespan of 30 years. From April 2023, the residual maturity will be 100 years from the date of issue of the bond.

Shortly thereafter, the SBI issued the lowest coupon AT-1 bonds, followed by other banks.

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