All public sector banks successfully rolled over additional tier-1 bonds with call option due this fiscal, according to ICRA Ltd. This, despite concerns stemming from a change in regulations for mutual funds and the volume of such issuances this year.
According to the rating firm’s estimates, call options were coming due for bonds worth Rs 28,430 crore in the ongoing financial year. This included Rs 20,505 crore in AT-1 bonds of public sector banks and Rs 7,925-crore bonds from private sector banks. A majority of these bonds, or Rs 19,750 crore, were coming due in the second half ending March.
Ahead of this, most lenders have managed to replenish the capital. Rs 37,202 crore has been raised collectively by private and public sector banks, ICRA said.
The demand from mutual fund investors remained muted and the AT-1 bonds of state-owned lenders were subscribed by other private banks, (which sell down to other investors), pension funds and corporate treasuries, according to ICRA. The coupon on the fresh bonds issued by the banks largely remained similar or lower than the cost of capital being replaced, the rating agency said.
The Securities and Exchange Board of India had revised norms to cap the exposure of debt mutual funds to these Basel III debt instruments issued by banks at 10%, and not more than 5% to a single issuer. As mutual funds were a large investor segment in these bonds, the changes were expected to impact the demand for these instruments issued by the banks.